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IL&FS forms $550 mn distressed assets investment platform with Lone Star Funds

28 February, 2017

Infrastructure Leasing & Financial Services Ltd (IL&FS) has formed a joint investment platform with American private equity fund house Lone Star for stressed infrastructure projects in India.

The platform would have a capital pool of $550 million (Rs 3,685 crore), which could result in asset purchases of up to $2.5 billion.

The collaboration’s objectives align closely with that of Indian government and Reserve Bank of India (RBI) in resolving stressed infrastructure assets that are causing concern in the banking system, the firms said on Sunday.

They added that the recent changes in the regulatory framework bode well for the resolution of such projects.

Ravi Parthasarathy, chairman, IL& FS, said, “The India infrastructure sector is poised for revival as the evolving framework is becoming more conducive for resolving stressed assets.”

IL& FS is one of India’s leading infrastructure financing and developmental Institutions. Since its incorporation in 1987, IL& FS has built a strong portfolio of infrastructure projects aggregating to$25 billion.

Lone Star, a firm with global asset turnaround experience, traces its origins a joint venture between a third party investment group and the Federal Deposit Insurance Corporation in 1993, called Brazos Partners, in which nearly 1,300 bad bank assets that were impaired as a result of the US savings and loan crisis of the early 1990s were acquired and resolved.

After the majority of the assets held by Brazos Partners had been liquidated, John Grayken, chairman and CEO of the general partner of Brazos Partners, began organising institutional capital to continue pursuing investment opportunities on a larger scale.

It raised Brazos Fund in 1995 with approximately $250 million of capital commitments and subsequently targeted investments primarily in debt and real estate in North America. A year later in November 1996, the firm raised $396 million under Lone Star Opportunity Fund.

From 1997 the firm went global and now invests in operating companies, real estate, equity, credit, and other financial assets, on behalf of its fund limited partners (LPs), which include pension funds for public sector and corporate employees and retirees, as well as foundations and endowments that support medical research, higher education, and other philanthropic causes.

Funds formed by principals under the Lone Star Funds umbrella have raised aggregate capital commitments exceeding $70 billion. Lone Star has experience in both the public and private investment sectors, having closed more than 1,350 transactions with an aggregate purchase price of $180 billion (including acquisition financing and co-investors), according to its website.

Stressed assets get red hot

IL&FS and Lone Star join a raft of companies looking to invest in stressed assets that the Reserve Bank of India estimates has touched $120 billion, or 11.5% of local banks’ total loans, as corporate borrowers—especially in infrastructure and commodities sectors—struggle to repay debts.

Last August, Piramal Enterprises Ltd tied up with Bain Capital Credit to jointly invest in distressed assets in India.

This came a month after Canada’s Brookfield Asset Management Inc said it plans to invest Rs 7,000 crore into a joint venture with State Bank of India to invest in distressed assets.

Among other moves, US private equity firm JC Flowers & Co is floating a joint venture with investment bank Ambit Holdings Pvt Ltd and Kotak Mahindra Bank has launched a $525 million fund with Canada Pension Plan Investment Board (CPPIB) to invest in stressed assets.

International Finance Corporation has set up platforms with Hong Kong-based investment management firm ADM Capital and global alternative investments firm Apollo Global to invest in stressed assets in Asia and emerging markets.

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IL&FS forms $550 mn distressed assets investment platform with Lone Star Funds

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