Avenue Capital to buy out 27% Arcil stake from IDFC Bank, GIC, 4 others

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Avenue Capital Group, a New York-based investment firm with $9.4 billion in assets under management, is set to pick up a stake of about 27 percent in Asset Reconstruction Company (India) or Arcil.

Arcil is one of the oldest and largest asset reconstruction companies in India.

"Arcil has made an application to the RBI (Reserve Bank of India) involving a transfer of shares from existing shareholders to Avenue Capital Group. After the transaction, Avenue Capital Group will be the largest shareholder of Arcil," said Vinayak Bahuguna, CEO and Managing Director, Arcil.

Avenue Capital, led by billionaire CEO Marc Lasry, is best known for its bets on distressed debt. With the potential transaction, Avenue will join the list of global financial firms looking to tap the growing opportunities in the Indian distressed assets space.

The stake will be bought from exiting shareholders -- IDFC Bank (8.37 percent), First Rand Bank (4.11 percent), Ashmore Capital (1.37 percent through Quiveo Enterprises), Barclays (1.4 percent), Karur Vysya Bank (1.96 percent) and Singapore sovereign fund GIC (9.9 percent).

Other shareholders such as State Bank of India (SBI) (19.95 percent), IDBI Bank (19.18 percent), Punjab National Bank (10.01 percent) and ICICI Bank (13.26 percent) will maintain their current stakes in Arcil, the CEO said.

Arcil also plans to raise another Rs 1,500 crore in the next six months, and could be raised from its existing shareholders, insurance and pension funds and also Avenue Capital, Bahuguna said. He added that Avenue Capital will support its growth plans and help Arcil engage to bring in more global capital.

This is the first transaction of this scale and profile in the non-performing assets (NPA) sector in India, in that it creates an attractive solution for the key constituents,” said Anuj Khanna, CEO, Lagoon Advisory Partners, legal advisor to the deal.

Bahunguna said the company expects to close the deal in the first quarter (April to June) 2020.

At a time when Arcil’s private peers like Edelweiss ARC have been more active in the stressed asset market in India, Arcil is focusing on retail and mid-sized distressed assets.

According to Bahuguna, Arcil is selectively looking at some of the industrial assets too. “In the mid-sized segment, we are looking at companies with debt up to Rs 5,000 crore. We are looking at steel, textile and road projects and also selectively some of the stressed power projects.”

In the SME (small and medium sector enterprises) segment, we are looking at buying entire assets in the range of Rs 5 – 100 crore from banks.

Indian banks are sitting on more than Rs 10 lakh crore in bad loans, creating an opportunity for ARCs and domestic and foreign investors.

So far, Arcil has assets under management of Rs 12,000 crore. In FY18 until March 2018, Arcil bought Rs 2,700 crore worth of assets while the industry number stood at over Rs 20,000 crore, said Pramod Gupta, Arcil’s Chief Financial Officer (CFO).

The company plans to double the assets bought in the next fiscal year.