The Asset Reconstruction Company (India) Ltd (Arcil) is planning to empanel strategic investors with expertise in sectors such as steel, roads and power so that it can jointly submit resolution plans for stressed companies in these sectors to the Adjudicating Authority under the Insolvency and Bankruptcy Code (IBC).
ARCIL will also team up with strategic investors to participate in the “Swiss Challenge” process (make counter bids) that will be run on National Asset Reconstruction Company Ltd’s anchor/ base bid to acquire stressed companies from lenders, said MD and CEO Pallav Mohapatra.
Referring to RBI’s October 2022 guidelines, which allow Asset Reconstruction Companies (ARCs) to act as Resolution Applicants (RAs) under IBC, the ARCIL chief said: ”Now, if we want to become a RA, we will do it only when there is a strategic investor.
“Suppose there is a stressed steel unit, which lenders have put on the block. If a company in the same line of business wants to acquire this unit, it can join us as a strategic investor and we bid for it.”
Mohapatra emphasised that strategic investors will not only have the financial muscle but also the ability to run the business of a stressed company.
ARCIL, which is India’s oldest ARC (set up in 2002), will become RA only if it sees some potential for reviving a company and a strategic investor is interested in acquiring it.
As per RBI guidelines, an ARC can act as a RA, if it has minimum net owned funds of ₹1,000 crore; has a Board-approved policy regarding taking up the role of RA, among others.
Referring to a clause in the guidelines, whereby ARCs cannot retain any significant influence or control over the corporate debtor (CD) after five years from the date of approval of the resolution plan by the Adjudicating Authority under IBC, Mohapatra underscored that a strategic investor, which is in the same line of business as the CD, will ensure that there is a quick turnaround in the fortunes of the CD.
According to a ASSOCHAM-CRISIL report, ratings with more cash deals (involved in the sale of stressed assets by lenders to ARCs), the capital requirement for ARCs has increased, making partnerships critical, be it for bringing in capital or for co-investing.
The assets under management of ARCs is estimated to have increased to ₹1.19 lakh crore as at March-end 2023 against ₹1.09 lakh crore as at March-end 2022. CRISIL Ratings has estimated the FY23 AUM based on rated ARCs constituting over 75 per cent of industry AUM. Currently, there are 28 ARCs in the country.