ADIA to enter India distressed asset space

The vehicle will target a range of non-performing loan (NPL) opportunities, including stressed and distressed assets. There will be a focus on providing financial support to pre-stress companies to prevent them from entering insolvency. The team will be led by Eshwar Karra, who was formerly CEO of Phoenix ARC, an asset reconstruction unit sponsored by Kotak Mahindra Group.

Established in 2008, Phoenix ARC has completed more than 170 transactions worth a combined INR85 billion ($1.2 billion) over the past decade. They comprised corporate, small business and retail pools of NPAs (non-performing assets) with a face value of more than INR300 billion acquired from banks and financial institutions. As of March 2018, it had INR68 billion in assets under management.

“Institutional investors can play an important role in building a successful secondary market for non-performing loans in India. With a broad mandate to invest across asset types and sectors, our new partnership with Kotak will contribute to this process and help to ease the burden of NPLs on the Indian financial system,” Hamad Shahwan Aldhaheri, an executive director in ADIA’s private equities department, said in a statement.

Indian NPAs have generated increasing investor interest in recent years as the growing level of bad loans in the banking system has limited financial institutions’ availability to provide credit and threatened to restrict economic growth. The introduction of a new bankruptcy code is seen as a major step toward lowering the protections for borrowers that have historically made asset recovery difficult.

Several foreign investors have entered the market via partnerships with local specialists. Examples include India Resurgent Fund, a joint venture between Bain Capital Credit and Piramal Enterprises. Värde Partners, Apollo Global Management, Brookfield Asset Management, and J.C. Flowers have pursued similar initiatives with other groups. Värde estimates there is $180-200 billion in NPAs in India’s banking system, making the size of the opportunity akin to that in Spain or Italy.

Edelweiss Alternative Asset Advisors recently closed its second Indian stressed assets fund at INR92 billion ($1.3 billion) – a substantial step up from the $77 million raised for the debut vehicle in 2010. The firm plans to leverage experience gained through its own ARC, which is backed by Caisse de dépôt et placement du Québec (CDPQ), among others.

In 2016, Canada Pension Plan Investment Board (CPPIB) announced it would partner with Kotak Mahindra Group to invest up to $525 million in distressed assets in India. The Kotak Special Situations Credit Fund had a mandate much like that awarded to the ADIA-backed Kotak Special Situations Fund.

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• Topics
• South Asia
• Credit/Special Situations
• Fundraising
• Restructuring
• Restructuring
• India
• Abu Dhabi Investment Authority (ADIA)
• Distress
• Kotak Private Equity Group