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US-based PE firm JC Flowers and India’s distressed assets investor Eight Capital will launch a $500 million (about Rs 3,640 crore) fund to invest in mid-size corporate distressed assets in India.

International Finance Corporation (IFC), the private-sector investment arm of World Bank, will infuse more than $100 million (about Rs 730 crore), limited to 20% of the fund size in the JC Flowers India Opportunities Fund (JCF Fund), IFC announced in a statement.

JCF Fund will mobilise capital from local and international investors, including IFC, to invest in mid-size corporate distressed assets in India.

JCF Fund will be a newly established fund that will be set up in Singapore and managed by FP8 Services Pte Ltd (FP8 Services), which is jointly owned by the sponsors. It will be set up as an umbrella variable capital company in Singapore to aggregate contributions of international investors for investment in distressed companies in India, Eight Capital and IFC said in a joint statement.

IFC is also proposing an equity investment of up to $4 million (about Rs 29 crore) in local currency in JC Flowers Asset Reconstruction Pvt. Ltd (JCF ARC), for a 15% participation.

Established in 2015 in India, JCF ARC is currently co-owned by JC Flowers with a controlling 50% stake, Eight Capital with 35% shareholding and EMSO Asset Management Ltd, which has a minority 15% stake.

“Considering their existing investment in JCF ARC as shareholders and their new investments in JCF Fund and JCF ARC, the sponsors will collectively invest $25 million (about Rs 180 crore) in the JCF platform. The sponsors will raise additional funds from other third-party investors for investment in JCF Fund,” the statement added.

JC Flowers in India

At present, the New York-based PE major and Eight Capital also co-own JCF ARC, which is the licensed entity for the purchase of bad loans from banks in India.

In 2016, JC Flowers had floated a joint venture with Ashok Wadhwa-led investment bank Ambit Holdings Pvt. Ltd to acquire stressed assets in India with JC Flowers and Ambit holding 47.5% stake each and former Citibanker and serial entrepreneur Jerry Rao owning 5% stake in the JV.

In May 2019, Eight Capital along with London-headquartered Emso Asset Management decided to acquire a 47.5% stake in Ambit Flowers Asset Reconstruction Co. Pvt. Ltd, which was later renamed as JCF ARC.

As of June 2020, JC Flowers has invested more than $17 billion (about Rs 1.24 lakh crore) in 56 companies across 18 countries, including the US, UK, Germany, Japan and India. The firm currently has about $5 billion (about Rs 36,425 crore) in assets under management.

Eight Capital

Co-founded in 2005 by Ravi Chachra, Eight Capital is an investment firm focused on distressed assets and special situation opportunities in India. Since its inception, the firm and its investors have provided turnaround capital in excess of $500 million (about Rs 3,640 crore), as of June 2020, to companies with stressed balance sheets in India’s industrial and services sectors.

Eight Capital has co-invested with global investors such as Apollo, DE Shaw, Spinnaker Capital, Atlas Capital and J Goldman & Company.

Recently, JCF ARC teamed up with New York-headquartered financial services firm Cantor Fitzgerald to pick up a stressed road asset, its second acquisition.

Distressed opportunities

JCF Fund will join global and domestic PE firms that are lining up to invest in distressed assets in India as opportunities increase with attractive valuations, especially after the business disruption due to the coronavirus pandemic-led lockdown.

Global funds including Apollo Global, Oaktree Capital and Ares SSG have already picked up good quality distressed assets in India.

Canada’s Brookfield, State Bank of India and housing finance firm HDFC are joining hands to come up with a mega ARC.

In 2016, Kotak Mahindra Group along with the Canada Pension Plan Investment Board (CPPIB) launched a $525 million (about Rs 3,825 crore) distressed asset fund.

Even Blackstone had ventured into the ARC space in India in 2018, taking control of International Asset Reconstruction Company, while US-based Ares SSG (then Hong Kong-based investor SSG Capital) had acquired a 49% stake in Asset Care and Reconstruction Enterprise.

According to industry numbers, India’s stressed assets market is estimated to be more than Rs 8.5 lakh crore ($116 billion).

Rating agency ICRA Ltd has said that slippages from the restructured book of non-banking finance companies are estimated at 4-6% of their total loans.

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