US-based investment firm Avenue Capital Group is set to become the single-largest shareholder in Asset Reconstruction Co. India Ltd (Arcil) by acquiring a 27% stake from existing shareholders, including banks, said Vinayak Bahuguna, managing director and chief executive, Arcil.
“At the first stage, roughly 27% shares will change hands post RBI (Reserve Bank of India) approval, and that will make Avenue Capital the largest shareholder of Arcil,” he said adding that an offer was made to all shareholders and six of them have agreed to give up their stakes.
The sellers include IDFC Bank, South Africa’s FirstRand Bank Ltd, Quiveo Enterprises Ltd, Lathe Investment Pte Ltd (a subsidiary of Government of Singapore Investment Corporation Ventures), Karur Vysya Bank Ltd and Barclays Bank Plc.
However, Bahuguna declined to divulge the value of the transaction as a deal is yet to be finalized.
He added that Arcil is planning to raise ₹1,500 crore over the next six months and Avenue Capital could be one of the investors. “It will be a fund and we will have to give it some shape. Like I said, we haven’t had a full discussion on it yet and we also want to involve the new shareholder in these discussions.” Avenue Capital currently manages more than $10 billion in assets.
Asked why the investors are selling their holdings, he said it could be because they have been invested for a fairly long time, while banks are increasingly realizing that these are not their core activities. “For a lot of them, these holdings are not controlling shareholding but are minuscule shareholding; so I suppose they believe it is best to move on.”
Shareholders who will remain invested include State Bank of India (SBI), IDBI Bank, ICICI Bank, Housing Development Finance Corporation (HDFC) and Punjab National Bank (PNB). SBI owns 19.95% stake in Arcil, IDBI owns 19.18%, ICICI Bank has 13.26%; and HDFC and PNB own 2.32% and 10.01%, respectively.
The ARC, Bahuguna said, has approached RBI for its approval. “Our application to the RBI involves a transfer of shares from existing shareholders to a new investor who will step into the company. This is US-based Avenue Capital and has offices across the globe, including Asia,” he added. After the deal, Avenue Capital will receive a seat on the board of Arcil.
According to him, the transaction will not result in any capital infusion into the ARC. “No money is coming into the company in this part of the transaction as shares are just changing hands between people who are offering to sell and the buyer.”
Arcil has been a conservative organization and works with its own capital and has zero leverage on its books. “With Avenue Capital, we have a reasonable assurance of them supporting the growth plans as well as putting in touch and helping us engage lot of other capital which usually works with them across the globe,” he added.
In the last fiscal, Arcil bought assets worth ₹2,700 crore, which it expects to double this year. However, between April and now, it bought bad loans worth ₹600 crore. In 2017-18, ARCs in India bought bad loans worth nearly ₹20,000 crore.
Arcil is not targeting large assets and is aiming at transactions of up to ₹5,000 crore of outstanding loans. It is focussing on steel, textiles, roads and select power projects.
It is also looking at opportunities in bad loan sales done through the Insolvency and Bankruptcy Code (IBC).
Bahuguna said that while the National Company Law Tribunal (NCLT) process is moving in the right direction, it is still a little hard to read it in terms of finality of the outcome and how quickly one can get the assets.
“We made two relatively small bids for companies to try and rehabilitate them, but we found very little interest from the banks participating on the credit side, which we thought was counter-intuitive,” he said.
Source : Livemint Tue, Nov 13 2018.