CDPQ Private Equity Asia has picked up a 20% equity stake in Edelweiss Asset Reconstruction Company Ltd (EARC), Edelweiss said in a statement on Tuesday. Caisse de dépôt et placement du Québec (CDPQ) is Canada’s second-largest pension fund.
The equity stake is post the conversion of 33.2 million compulsorily convertible preference shares (CCPS) held by CDPQ into 52.6 million equity shares of Rs. 10 each of the company, valued at of around Rs. 97.25 each, on receipt of approval from RBI, it added.
Besides CDPQ’s 20% equity stake, Edelweiss Financial Services holds 60% ownership in EARC and the remaining 20% is held by institutional and individual investors. In the partnership, CDPQ targets annual investments of $150-175 million in stressed assets and specialised corporate credit, totaling around $600-700 million over a four-year period.
In October 2016, CDPQ entered into a long-term partnership agreement with the Edelweiss Group to invest about Rs 5,000 crore (around $750 million then). Three years later, it extended the partnership with the group to pick up stakes in Edelweiss’s NBFC unit. In 2020, VCCircle reported that CDPQ was also in talks to divest a part of its stake in the EARC to the Edelweiss Group.
However, earlier this year, a 14% shareholder of Edelweiss ARC Paras Kuhad levied allegations against Edelweiss Financial Services and EARC that the financial group had issued 20% equity to CDPQ at below fair value and some CCPS were sold to CDPQ and parent Edelweiss at terms that were loaded in favour of the subscribers.
This had prompted an investigation by the Ministry of Corporate Affairs (MCA).
Kuhad had first raised the issue before the Edelweiss Board in December 2019. He further wrote three letters to the Reserve Bank of India (RBI) in July and August 2020 and to the Prime Minister's Office (PMO) in November last year, as reported. While not much has come out of the investigation officially, people close to Edelweiss say that they have responded to queries from the RBI and the MCA and there has been no development post that.
“CDPQ has been a long- term partner in EARC and we are pleased that they will now be a sponsor and enhance their long-term commitment and actively participate in the growth of this sector as a shareholder of EARC,” said R K Bansal, MD & CEO of Edelweiss ARC.
Earlier this year, VCCircle reported that EARC’s purchases during COVID had dipped by 40%. EARC manages Assets under Management (AUM) worth around Rs 40,800 crore with a market share of about 41%.
This is supported by “strong recoveries despite suspension of IBC (Insolvency and Bankruptcy Code). In the post-Covid environment, EARC will drive economic rehabilitation and revival, while focusing on building retail assets resolution capabilities as well”, the statement said.
CDPQ manages funds primarily for public and para-public pension and insurance plans. The pension fund officially set foot in India in 2016. Since then, it has invested more than $5 billion across sectors such as infrastructure, real estate, stressed assets and renewable energy in tie-ups with local companies such as Edelweiss.
CDPQ has made several other investments in Edelweiss Group. In mid-2019, CDPQ agreed to invest about Rs 1,800 crore ($250 million) in ECL Finance Ltd, the non-banking financial arm of Edelweiss Group, to help establish a credit platform. The pension also owns a small stake in the group’s Mumbai-listed flagship Edelweiss Financial Services Ltd. Besides, it has invested in Edelweiss’s stressed assets and special opportunities funds.