Mumbai : In a first by a global institutional investor, the Canada Pension Plan Investment Board (CPPIB) committed $450 million to invest in stressed assets market, along with Kotak Mahindra Group’s asset reconstruction company (ARC).
“The current environment has created a much larger opportunity that requires significant capital commitment,” Kotak Special Situations Credit Fund’s chief executive S Sriniwasan said. He said the Kotak Group is committing its own USD 75 million and the total amount of USD 525 million will be invested by the fund in the asset reconstruction space, which has witnessed greater attention recently, reports PTI.
The investment will explore the opportunities arising from the current stress in the Indian banking and corporate sectors. While having a flexible mandate, the investments will be made in banks’ stressed assets and will aid the restructuring and recovery of companies in distress, the release said.
Sriniwasan explained that the money will be invested along with the group’s existing existing ARC, Phoenix. “Phoenix has the skillsets to run the business, which includes doing the due diligence and recovering the money,” Sriniwasan told PTI.
“The ARC industry has limited capital and there is an urgent need for substantial capital to buy non-performing assets from banks, as and when these loans get sold at fair value,” Phoenix’s chief executive Eshwar Karra said.
The announcement comes at a time when there is a huge jump in NPAs.
According to reports, listed banks recognised Rs 1 trillion of fresh NPAs between September and December quarters taking gross NPAs to Rs 4.34 trillion, following an asset quality review by RBI to clean-up bank balance sheets. Sale of the asset to ARCs is one of the routes of resolving stress, but there are problems like
ARCs struggling with capital and also difficulties in arriving at the right valuation which makes deal fructification a worry.
