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March 12, 2006

Corporate, bank restructuring providing new opportunities

Economic Times (in its Corporate Dossier supplement) has an article on the rising number of distressed asset funds in the Indian market.
Call them distress or stress asset funds. Restructuring funds or turnaround funds. Their target is to rescue sick or potentially sick companies, and turn around their fortunes. Over the last few months, India has seen a host of such funds, attempting to turn around sick companies in sectors ranging from infrastructure to manufacturing, leading them out out long debt traps. The distress funds are not targeting totally defunct enterprises, but those having good market potential and a strong management in place.

GE Capital, Asia Debt Management, Clearwater Capital, Citigroup, DSP Merrill Lynch and JP Morgan are some of the leading names that have floated such funds. Many of them have struck some unique deals — involving equity, debt or a mix of these and preference shares. Some others are now actively pursuing non-performing or under-performing assets for such deals.

Business Today has a report on how banks are purchasing non-performing assets (NPAs) - a euphemism for bad loans - from other players in the industry.
A new breed of investors, mainly foreign ones, is willing to pay cash upfront to acquire them. Since October 2005, this space has witnessed nearly Rs 2,000 crore of cash transactions. The trigger: Reserve Bank of India's announcement in July last year of norms for inter-bank transfers of these assets. The players: ICICI Bank, HSBC, State Bank of India and Punjab National Bank as sellers and Standard Chartered Bank, JP Morgan, Deutsche Bank and Kotak Mahindra Bank as buyers. The total NPAs in the Indian banking system: Rs 1,11,000 crore.

...For buyers, the low acquisition price makes these assets attractive as they can scavenge for significant returns. Market sources say ICICI Bank received about 15 per cent of the book value for Rs 1,300 crore of dicey assets it sold Stanchart recently.

Arun Natarajan is the Founder of Venture Intelligence India, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of Venture Intelligence India newsletters and reports.