Arcil selling 27 per cent stake to US-based distressed asset fund Avenue Capital

In its peak, Arcil, perceived as a public institution, was the largest player in the segment that today has over a dozen players, but has lost its sheen following the entry of private players like Edelweiss ARC and JM Financial ARC, which are the largest players. Most private players have foreign equity investors.

The oldest asset reconstruction company Arcil is selling a 27 per cent stake to the US-based distressed asset fund Avenue Capital, becoming its single largest shareholder. The US fund is picking up stakes from IDFC Bank (8.37 per cent), government of Singapore's Lathe Investments (9.9 per cent), Ashmore Capital (1.37 per cent), South African lender Firstrand Bank (4.11 per cent), Karur Vyasya Bank (1.96 per cent) and Barclays Bank (1.5 per cent), chief executive and managing director Vinayak Bahuguna told reporters here Monday.

In its peak, Arcil, perceived as a public institution, was the largest player in the segment that today has over a dozen players, but has lost its sheen following the entry of private players like Edelweiss ARC and JM Financial ARC, which are the largest players. Most private players have foreign equity investors.

An application has been made for getting the Reserve Bank nod for the transaction, after which Avenue will become the largest shareholder of the company, Bahuguna said, declining to give the details on valuation. Even though no new money is coming to the company, as it is a secondary transaction, Avenue is committed to putting more capital if needed, he said.

Additionally, Avenue, which has over USD 10 billion assets under its management, also has a global network which can help Arcil, he said. Bahuguna said Avenue has been operating individually in its capacity as a distressed asset fund in the country since 2005. He said State Bank (about 20 per cent), IDBI Bank (19.18 per cent), ICICI Bank (13.26 per cent), and PNB (10.01 per cent) have decided to continue hold onto their stakes in the company.

There was a cut-off date by which shareholders were allowed to respond to an offer by Avenue, he said, adding discussions are on with other shareholders as well through which Avenue can increase its ownership, Bahuguna said.

Avenue will get one seat on the board after the completion of the transaction, which Bahuguna expects to go through by March 2019. Arcil invested Rs 2,700 crore to pick up distressed assets in fiscal 2018 and is looking to double the same this year, he said. The company has already invested Rs 600 crore so far this fiscal year, he said, adding it's eyeing opportunities in small steel, textiles, roads and power assets. This is about 12 per cent of the overall Rs 20,000 crore of distressed asset play in the system, he added. Of the Rs 12 trillion of stressed, around Rs 6 trillion are up for grabs at the NCLTs but most of them are big companies owing banks tens of thousands of crores.

Typically, Arcil does not invest in large corporate stressed cases which have dominated last year, Bahuguna said, adding it eyes opportunities in the mid-market segments of under Rs 5,000 crore.

He said the company is looking to raise a new fund of up to Rs 1,500 crore which will be raised from long-term investors like international pension funds, endowment funds and also domestic ones like insurance companies. Bahuguna said the company has tied up with a large foreign institution to buy up to Rs 1 trillion of stressed small business advances by banks which have turned sour. He said overall stressed assets in the banking system from small businesses stand at Rs 2 trillion. Arcil had a net income of Rs 123 crore in fiscal 2018, which was up from Rs 46 crore and Rs 14 crore in the previous two fiscal years.