US fund Avenue Capital picks up 27% stake in Arcil; becomes its single largest shareholder

Mumbai: The oldest asset reconstruction company Arcil is selling a 27 percent 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 percent), government of Singapore's Lathe Investments (9.9 percent), Ashmore Capital (1.37 percent), South African lender Firstrand Bank (4.11 percent), Karur Vyasya Bank (1.96 percent) and Barclays Bank (1.5 percent), chief executive and managing director Vinayak Bahuguna told reporters here on 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. [caption id="attachment_4495585" align="alignleft" width="380"]

Representational image. Reuters.[/caption]Even though no new money is coming to the company, as it is a secondary transaction, Avenue is committed to put more capital if needed, he said. Additionally, Avenue, which has over $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 percent), IDBI Bank (19.18 percent), ICICI Bank (13.26 percent), and PNB (10.01 percent) 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 percent 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.