International Finance Corporation plans to invest up to Rs 325 crore (around $50 million) in Gurugram-based Encore Asset Reconstruction Company Pvt. Ltd through a combination of security receipts and non-convertible debentures.
IFC proposes to invest Rs 195 crore in security receipts issued by one or more trusts set up by Encore ARC and Rs 130 crore via debentures, the private-sector investment arm of the World Bank said in a disclosure.
The proceeds will be used towards acquisition and resolution of distressed assets in the retail and micro, small, and medium enterprises segment in India.
IFC’s investment is part of a larger round in which Encore ARC is looking to raise up to Rs 591.5 crore via security receipts and NCDs.
Nasdaq-listed Encore Capital Group Inc. is the holding company of Encore ARC. It holds a 50% stake in the India unit. Asia-focussed private equity firm ADV Partners holds a 30% stake while IFC owns the remaining 20%.
The proposal will be placed before IFC’s board for approval on 8 June.
IFC is one of the most active investors in India. In the stressed assets segment, it proposed to invest $100 million in India Resurgent Fund in March. The fund was set up by Bain Capital Credit and Piramal Enterprises in 2016. It has a mandate to acquire distressed assets.
Indian banks’ stressed assets, or bad loans plus restructured loans, stood at Rs 9.46 lakh crore as of September 2017, or 12.2% of total loans. This has attracted at least seven foreign funds, which see an opportunity in stressed assets and specialised corporate credit in India, in partnerships with local firms.
These foreign firms include Canadian pension funds Caisse de Dépôt et Placement du Québec (CDPQ) and Canada Pension Plan Investment Board (CPPIB) as well as alternative investment firms Bain Capital, Oaktree Capital, Brookfield Asset Management and J.C. Flowers & Co.
Aditya Birla Capital Ltd, the holding company of the diversfied Aditya Birla Group’s financial services interests, is also setting up an asset reconstruction business unit. Recent media reports indicate that Aditya Birla ARC is looking for a partner in this business.