Hong Kong firm SSG Capital Management buys 49% in ACRE for Rs 41 crore
Economic Times – November 25, 2014
MUMBAI: Hong Kong-based private equity firm SSG Capital Management has acquired a 49% stake in Asset Care & Reconstruction Enterprise (ACRE) for Rs 41 crore, marking the first entry of a foreign investor in the asset reconstruction space by using the foreign direct investment ( FDI) route.
The entry of SSG Capital, which specialises in distress asset management, may encourage other specialist stress funds to team up with Indian ARCs. RP Singh, chief executive officer of ACRE, confirmed the development, but declined to give further details.
Sources within the company said there’s been no change in the management following the entry of SSG Capital. ACRE had issued preferential shares which were subscribed only by SSG Capital Management, resulting in the reduction of IFCI and Punjab National Bank’s ( PNB) shareholding.
Sources said the company has issued shares at a face value of Rs 10, but with a premium of Rs 12.50. Following the deal, IFCI’s stake fell to 19% from 40% while Punjab National Bank’s (PNB) halved to 15% from the 30% earlier.
A recent report by the New York-based business management advisor, Alvarez & Marsal, said ARCs will have to raise more capital or attract foreign investment to expand their books after the Reserve Bank of India (RBI) directed ARCs to pay 15% of the consideration value as cash against the 5% earlier. The balance can be paid as security receipts.
The report said the net worth of ARCs is sufficient enough to buy just about 5% of the bad loans in the banking industry if they are acquired at 60% of the book value. The ARC business has been in the spotlight for the past one year, with banks aggressively offloading their distress loans to them. Since 2013-14, banks offloaded nearly Rs 80,000 crore in a span of 18 months since the inception of ARCs in 2003.
The other shareholders of ACRE include Tourism Finance Corporation and Bank of Baroda with 5% stake each while LIC has 4%. The rest is held by the United Bank and Madhya Pradesh Consultancy. Although ACRE is yet make a mark in the ARC business, officials from the company, who did not wish to be identified, said it’s finalising a strategy to position itself among the lead players.
“We will have to raise funds soon since RBI has asked ARCs to pay more cash upfront although the plans are in the initial stages,” said a company official. As of now, there are 14 ARCs operating in the market with Edelweiss ARC and Arcil, JM Financial ARC and International Asset Reconstruction Company being most active in the stressed loan space.