US-based private equity firm KKR has received approval from the Foreign Investment Promotion Board (FIPB) to pick a stake in International Asset Reconstruction Company Pvt Ltd (IARC). The proposal was approved by the nodal government body monitoring foreign investment in the country, early this month, as per a press note.
This would allow the PE firm to complete a transaction that has been in the works for over a year. In December 2014, IARC chairman Arun Duggal had told The Economic Times that a consortium led by KKR is holding discussions to acquire a controlling stake in IARC. In a separate article, citing unnamed sources, the newspaper had recently said Bharti Group’s Akhil Gupta is likely to join KKR as an investor in IARC.
IARC is involved in acquisition, resolution and reconstruction of non-performing loans.
The FIPB approval names KKR as an investor and states that the deal worth Rs 150 crore (approximately $22.5 million) would raise the total foreign holding in the firm to 78.96 per cent, from 58.7 per cent currently.
IARC, with assets around Rs 1,500 crore under management, has three sponsors—HDFC Bank, Tata Capital Finance Services and ICICI Bank. Other stakeholders of the company include City Union Bank. FMO Netherlands and Standard Bank of South Africa are among the overseas investors in the firm.
With offices in Mumbai, Gurgaon and Chennai, IARC helps in revival of non-performing assets (NPAs) of sick units with turnaround potential, and optimising resolution of NPAs. To date, IARC has developed business relationship with 29 financial institutions/banks, including private, public sector and foreign banks, as per its website.
Asset reconstruction companies have had a mixed track record in the past couple of years despite growing bad loans for lenders. However, the space has seen foreign investors showing interest after the Reserve Bank of India eased norms for ARCs acquiring stressed assets.
Recently, Canada Pension Plan Investment Board (CPPIB) and US-based private equity firm JC Flowers & Co joined hands with Kotak Mahindra Group and Ambit Holdings Pvt Ltd, respectively, to acquire stressed assets in the country.
Also, Edelweiss Distressed Asset Resolution Business (EDARB) said that it is looking to raise a further capital of around Rs 1,000- 2,000 crore (appropriately $300 million), as a lot of bad assets are likely to put on the block next year following RBI’s decision to carry out an asset quality review.