To bolster its ability to buy stressed assets from lenders, the Asset Reconstruction Company (India) Ltd (Arcil) has firmed up plans to rope in a foreign strategic investor and also raise ₹1,000 crore via the alternative investment fund (AIF) route in the current financial year.

Arcil, which is India’s first asset reconstruction company (ARC), is scouting for a foreign strategic investor that can commit dollops of capital, so that it can buy stressed assets in the retail, small and medium enterprise and corporate segments from lenders, resolve and sell them.

“One of the sources of capital will be equity and we have some plans there. Now we want to bring in a strategic investor (most likely a foreign player) who can commit dollops of capital and more.

“So, we are in some discussions, which we hope we can close quickly. The investor will be somebody who can also help us raise foreign funds eventually,” said Vinayak Bahuguna, CEO and MD.

Bahuguna explained: “I suppose anything which they (strategic investors) believe puts them in a controlling position would be good for such partners. Ideally, investors would say we want 76 per cent, somebody would say 51 per cent and others would say 26 per cent.

“So, it will have to be anywhere between the lower end of 26 per cent and the higher end of 76 per cent.”

But, more importantly, he believes that some of Arcil’s existing shareholders also might be willing to participate in these opportunities, going forward, to retain their shareholding. Shareholders of Arcil are State Bank of India, IDBI Bank, ICICI Bank and Punjab National Bank.

Capital constraints

In a CRISIL-Assocham report on ARCs, Ashu Suyash, MD & CEO of credit rating agency CRISIL, said: “Capital remains a major challenge for ARCs. Increased stringency in the provisioning norms for investment in security receipts will push up cash-based sale of stressed assets.”

Furthermore, the Reserve Bank of India has raised the net-owned funds for existing ARCs to ₹100 crore (from ₹2 crore) effective April 1, 2019. All this will, in turn, necessitate large capital requirement for ARCs.

Third fund

On plans for a third fund of ₹1,000 crore, Bahuguna said: “We have a track record (of raising two earlier funds of ₹250 crore each), and the opportunities are there.

“...We will target a big fund…We may set our sights for ₹1,000 crore and do it in that sort of range. I think the task of raising a fund actually seems to take forever. But you don’t want to be waiting forever for the money. So, maybe, we will try to raise funds in ₹1,000-crore lots.”

Investors in the fund will be insurance funds, pension funds, high net worth individuals, family offices, all of that. The ARC will be raising the third fund in the current financial year and close it.

The Arcil chief said the third fund is likely to be raised via the alternative investment fund route. Listing of underlying units will give investors liquidity.

He elaborated: “For investors to be able to deal with something which is a lot more liquid, is, I think, very critical. So, we will do that.”

comment COMMENT NOW