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Blackstone Group to buy IARC, enter India’s distressed assets space

LiveMint logoLiveMint 10-09-2017 Reghu Balakrishnan

Mumbai: Blackstone Group Lp, the world’s largest alternative asset manager, is set to acquire a controlling stake in Mumbai-based distressed asset buyer International Asset Reconstruction Co. Pvt. Ltd (IARC), according to two people aware of the development.

According to the agreement, Blackstone will initially invest about $150 million for a large minority stake, which can be subsequently raised to a majority one in a couple of years, said one of the two people, requesting anonymity.

Blackstone is the latest among global private equity funds to tap the opportunity in India’s fistressed assets space as RBI hastens a clean-up of bank balance sheets. Graphic: Mint

Blackstone is the latest among global private equity funds to tap the opportunity in the distressed asset space. Bad and stressed loans at Indian banks have surged to at least Rs10 trillion as on 31 March as the Reserve Bank of India (RBI) hastened a clean-up of balance sheets of lenders, forcing them to sell off bad loans to free up capital for lending.

“Indian ARCs are attracting serious global interest because lenders have started taking a realistic view towards the underlying value of bad loan assets,” said Mahesh Singhi, founder and managing director of Singhi Advisors Pvt. Ltd. “Lenders are also expecting almost 50% cash down payment as against 15% earlier on such loan acquisitions, which needs big capital commitments and deep pockets.”

Blackstone’s purchase will be executed through the Singapore arm of the company’s Tactical Opportunities division, said the second person cited above, who also declined to be identified. It will be spearheaded by Kishore Moorjani, senior managing director at the Tactical Opportunities unit, the person added.

IARC was set up in 2002 by Arun Duggal, a former managing director and chief executive officer of Bank of America in India, along with former State Bank of India chairman M.S. Verma. IARC is backed by HDFC Bank Ltd, Tata Capital Financial Services Ltd, ICICI Bank Ltd, City Union Bank Ltd, FMO Netherlands and Standard Bank Plc., UK, as institutional shareholders and has assets of around Rs1,500 crore under management.

A spokesperson for Blackstone declined to comment. Calls, text messages and mails sent to IARC chairman Duggal did not receive any response while mails sent to spokespersons of HDFC Bank, ICICI Bank, Tata Capital and FMO Netherlands went unanswered.

Another US-based PE fund, KKR & Co., was in advanced discussions to acquire a controlling stake in IARC in 2016 but the talks were abandoned after KKR decided to set up its own asset reconstruction company (ARC) in India. Mint had reported Blackstone’s plans to enter the distressed assets space in India in July.

“Blackstone’s investment in IARC will be on similar lines to that of the CDPQ-Edelweiss deal,” said the second person. Last year, Caisse de Dépôt et Placement du Québec (CDPQ), Canada’s second-largest pension fund, signed a long-term partnership with Edelweiss Financial Services Ltd to invest approximately Rs5,000 crore in stressed assets and specialized corporate credit in India over the next four years and to acquire a 20% stake in Edelweiss Asset Reconstruction Co.

AION Capital Management Ltd, a joint venture between ICICI Bank and Apollo Global Management, applied for a licence to form an ARC, Mint reported in January. US-based stressed asset specialist Lone Star Funds has also applied to RBI to set up an ARC in India, according to a November 2016 Mint report.

KKR & Co. has received a licence to start an ARC in India and Hong Kong-based SSG Capital Management and International Finance Corp. (IFC), the investment arm of the World Bank, have acquired stakes in existing ARCs. In January 2015, IFC invested in Encore Asset Reconstruction Co. Pvt. Ltd while SSG had acquired a 49% stake in Asset Care & Reconstruction Enterprise in 2014.

New entrants in the distressed assets business in India include Ambit Flowers Asset Reconstruction Pvt. Ltd, a joint venture between global stressed asset specialist JC Flowers and Ambit Holdings Pvt. Ltd; Suraksha ARC, sponsored by Sudhir Valia, executive director at Sun Pharmaceutical Industries Ltd; and Raytheon Asset Reconstruction Pvt. Ltd, sponsored by Anil Bhandari.

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