Bank of America has sealed its biggest deal in India's stressed assets segment, with the investment banking giant buying bad loans of beleaguered Jayaswal Neco Industries Ltd.
A group of investors led by the US bank have paid around Rs 3,300 crore (around $476 million) to acquire 88% of Chennai-based Jayaswal Neco’s debt, two people familiar with the development told VCCircle. The remaining 12% of bad loans will also be bought within the next one month, they added.
The total debt of Jayaswal Neco, which manufactures cast iron pipes, stands at more than Rs 4,800 crore.
The investment has largely been made via domestic asset reconstruction company Assets Care & Reconstruction Enterprise (ACRE), which counts special situations investment firm SSG Capital Management and private-sector lender Axis Bank among its major shareholders.
Bank of America will pay ACRE a commission to facilitate the deal as Reserve Bank of India regulations allow only asset reconstruction firms and domestic financial institutions to buy loans or debt from banks.
The bad loans in this case were purchased from lenders led by State Bank of India (SBI), which took a haircut of about 30% on the cash deal, the people cited above said on the condition of anonymity.
SBI had a total fund-based exposure of Rs 1,363 crore, on which it recovered around 70%. Other lenders which have now offloaded their loan exposure to ACRE include IDBI Bank, Bank of Baroda, Bank of India and Central Bank of India.
Representatives for Bank of America and ACRE did not respond to requests for comment, while calls made to SBI officials remained unanswered.
Bloomberg was the first to report the development.
With this acquisition, Bank of America is diving deeper into the growing distressed asset pile in India. So far, the US bank’s investments in the segment include SevenHills Hospital and telecom tower firm GTL Infrastructure Ltd.
Earlier this year, Bank of America was the sole bidder for SBI’s loan exposure of Rs 15,431 crore to Essar Steel, but the sale was subsequently scrapped.
Jayaswal Neco turned into a stressed asset after a decline in the demand for its products led to the company defaulting on its debt repayments. The beleaguered company was a part of the RBI’s second list of 28 stressed defaulters to be referred for resolution under the Insolvency and Bankruptcy Code.
Last year, SBI and PNB had announced Swiss challenge-based auctions for the sale of their exposures to Jayaswal Neco. Swiss challenge is a method where an initial unsolicited bid is received and the creditor then invites third parties as well as the initial bidder to match or exceed it.
SBI had sought a 100% cash bid for the asset and had set the reserve price at Rs 886 crore.
Investor interest in stressed assets
Over the past year, a number of institutional investors including State Bank of India, Edelweiss and AION Capital have either announced or raised funds to invest in stressed assets.
Kotak Investment Advisors Ltd last month floated a fund to invest in stressed assets and received a commitment of $500 million (Rs 3,560 crore) from an offshore investor after a failed deal with Canada Pension Plan Investment Board (CPPIB).
In January, Edelweiss Alternative Asset Advisors Ltd said it had raised Rs 9,200 crore ($1.3 billion) for stressed asset investments.
Similarly, SBI Funds Management Pvt. Ltd is raising Rs 750 crore ($102 million) for a new fund to invest in mid-size companies with distressed balance sheets.