International Finance Corporation (IFC), the private sector investment arm of the World Bank, plans to become one of the key shareholders in Encore Asset Reconstruction Company Pvt Ltd, the proposed Indian arm of US-based Encore Capital Group Inc, it said on Friday.
The proposed venture, which will be headquartered in Gurgaon, will support the acquisition and resolution of distressed assets (DAs), largely retail and MSME NPAs in India.
The total cost of setting up the firm is estimated at Rs 495 crore (approximately $82.5 million).
While Encore Capital will own up to 50 per cent stake in Encore ARC, IFC will hold up to 20 per cent. The Indian team of Encore Capital is in talks with other potential investors for remaining 30 per cent for Encore ARC.
IFC's investment in Encore ARC will be a combination of equity investment and compulsory convertible debentures (CCDs) over a period of three to four years. The breakup between equity and CCDs shall be in the ratio of 40:60, it said.
“IFC's involvement in this project will allow the foundation for a focused DA market in retail and MSME sectors, which will improve liquidity in the overall economy. Banks selling their DAs to Encore ARC will be able to devote their resources for originating new credit, while Encore ARC's activities will help debtors get back into the credit system,” IFC said in the disclosure.
San Diego headquartered Encore Capital is a NASDAQ-listed company engaged in the business of debt management and has subsidiaries across the globe, including Europe and South America. The company has a strong presence in retail space in the US and the UK, and the proposed deal will help it become an active player in the underserved retail NPA market in India.
(Edited by Joby Puthuparampil Johnson)