Real Estate = New Sweet Spot for Buy Out Funds

Two global buyout funds are set to launch their first dedicated real-estate funds signalling the growing interest in the property asset class. Kohlberg Kravis Roberts, the buyout firm run by Henry Kravis and George Roberts, and TPG Capital Management are looking to raise a combined $1.5 billion or more for the funds. Both the firms are looking at hitting the fundraising ground soon with KKR committing a significant amount of the firm’s capital to the new venture and TPG eyeing the second quarter to begin marketing the fund.

Their proposed real estate play is not small by any metric. TPG’s real-estate fund – the larger of the two – with a target of at least $1 billion is raising a fund which would make it the second-largest property fund ever, The Wall Street Journal reports. TPG willl pursue multiple real-estate fund strategies such as buying up distressed properties, and also seek to take a more private-equity approach to the space, buying whole property companies and large portfolios of buildings.

“We combine sound property capabilities with corporate-style investing, which TPG has significant expertise in,” Kelvin Davis, head of TPG’s real-estate group, told the Wall Street Journal.

On the other hand, KKR plans to launch its fund with $500 million in initial capital. The firm has been investing in real estate for two years, it is only now that it will be raising a dedicated real estate fund of its own.

Both TPG and KKR are late in pursuing dedicated real estate fund strategies and hitting the fund raising ground. Rivals including Blackstone Group and Carlyle Group have raised multibillion-dollar property funds in the past, which have generated large fees and boosted their firms’ income.

Blackstone has been steadily building its real estate business to about $57 billion of assets under management now. It owns real estate properties such as Hilton Worldwide Inc. and California’s Hotel del Coronado. The New York-based firm last year raised a $13.3 billion real estate opportunity fund, a record for the industry and is only getting more bullish on real estate. Blackstone Group is betting heavily on residential real estate, CNBC reported recently quoting its Chairman and CEO Stephen Schwarzman.

“Blackstone is now the largest owner of individual houses in the United States,” Schwarzman told CNBC. Carlyle, based in Washington, oversees real estate funds in the U.S., Europe and Asia.

It is, however, premature to assess what implications will it have in India as it would depend upon how these PE majors view the Indian property market both in terms of opportunity and relevance to their strategies.

TPG manages a growth and a buyout fund in India having made about a dozen investments across funds. KKR has invested over $1.1 billion in India and its PE portfolio includes Aricent, Avantha Power, Cafe Coffee Day, Dalmia Cement, Magma Fincorp and TVS Logistics. The NYSE-listed buyout major, which set up India operations in 2009, also lends through a non-banking finance company. It also received SEBI’s approval under new AIF norms for a fund, KKR India Alternative Credit Opportunities Fund 1.

Source – VC Circle

Wall Street doctors come to rescue PEs in India

Come strong or don’t come at all in the middle,” Tony Alvarez II relies on basketball analogy to cut to the chase while explaining the basic factors essential to turn around a sick corporation. Bad news usually makes Alvarez smile.

For over three decades he and his partner Bryan Marsal has been corporate America’s favourite Mr Fix Its — ‘doctors’ who cure distress by radically transforming companies to salvage value.

But life has especially been frantic for the duo and their eponymous New York headquartered consulting firm in the last decade when they have dominated most of the high profile insolvency and restructuring cases.

From the complex and expansive Lehman Brothers bankruptcy mandate to Washington Mutual and Arthur Andersen; from Timex Watches to Calvin Klein jeans — Alvarez & Marsal has been relentlessly chopping costs, hoarding cash and helping marquee names to turn the corner. “The key to our model is not cut, cut and cut.

It’s about prioritising your people, product and figuring out what is core and accordingly spend,” explains Alvarez, co-CEO and MD, Alvarez & Marsal (A&M), during his exclusive interaction with ET, insisting that he is not a mercenary, who only takes away jobs. In Mumbai on a whistle stop tour to survey the firm’s 4-year old local operations, Alvarez shares his blueprint.

India is a very different market for a firm like A&M to replicate its global success. Creditors here are not activists who would throw out incumbent managers or promoters and liquidate the assets to recover dues.
Loans get rolled over or restructured on mutually agreed and convenient terms under the corporate debt restructuring (CDR) mechanism. Any advisory work is also is provided by the merchant banking arms of the lenders. How then can A&M’s army of consultants, functional experts or operating managers cut their teeth with India Inc? How will their brashness convince local lenders to rope them in to resuscitate some of the stressed assets in their bank portfolios? Alvarez seems nonplussed even though he accepts that conservations with local lenders have so far been “mostly passive and slow.” But the idea of entering a market that is not used “to a product like us is not new,” he says.

“Resistance is natural. The local community (read banks, promoters, investors) will be hesitant but we have to be patient. We have faced similar challenges in Brazil, Russia and China. Even Europe didn’t know us either before 2001,” he adds hoping that eventually people will acknowledge “that they are a force for good.”

Till then, A&M’s 11-member India outpost has been opportunistic and have zeroed in on private equity firms to improve the operating efficiencies of their portfolio companies. Some are stressed, some even distress while many need tweaking around specific pressure points.

“The role that we play today is helping companies improve operating performance, liquidity, working capital,” highlights Alvarez. “We’re working the asset as opposed to just the financials.” Being consultants, A&M lacks the balance sheet muscle of an asset reconstruction company (ARC) to buyout the stressed assets themselves. They also can’t use their skills to quicken a bankruptcy proceedings because the law simply doesn’t exist here.

So fishing for opportunities with the PE firms stuck with bad investments makes imminent business sense. With dismal returns on investments, lack of exit options and even financial frauds in portfolio companies, the private equity community has been pushed to a corner.

And unlike banks, they are an impatient lot. Alvarez does not mince his words. “PE funds in India and China are facing a unique challenge. They thought this was an easy way to make money and exits came easy in a vibrant IPO market.

But the dynamics have now changed and the market has dried up. So they will have to hold on to their portfolio longer and are going to need managers to deliver operating performances,” he says. But it is not so simple.

Most funds have minority positions and limited management rights, so they really lack in flexibility or have a voice in most strategic decisions. “But even within that construct, there are trustworthy relations between the promoters are the funds,” feels Alvarez.

“The two interests should align if both are looking to grow the pie. I only see apotential clash in the timing of exit.” A&M would not divulge specific client details, only mentioning that they have so far worked on 20 projects in India. This is a clear indication that they are on the right track, believes the firm’s brass.

According to PE industry grapevine, the firm worked with WL Ross for seven months in 2010-11 to turn around the ailing textile company OCM — advising them on operational issues like cash-flow management, cost rationalisation and improving manufacturing efficiencies.

WL Ross, too, did not want to comment on the issue. They also worked on similar lines with a high growth seeking local mobile hand set maker, again a PE portfolio company.

With the heightened volatility, business should be booming for this consulting hot shop that is already clocking close to a billion dollars in worldwide revenues. But the client testimonials are mixed.

“In case of operating inefficiencies, we ideally work with the management to tap in-house talent or use people from our team that have seen many businesses scale up,” said Rahul Bhasin, managing partner, Barings Private Equity Partners India, not entirely convinced about the scope for advisors like A&M in India.

“More than advisors, what companies undergoing stress need is a special situations fund or an ARC that can help restructure business and solve liquidity issues,” quips Birendra Kumar, MD & CEO of International Asset Reconstruction Company.

“While working with us, they more or less delivered on their mandate. But for India, I find them seriously overpriced,” points out a former client. “They are not as differentiated as they are in the US, says a global PE fund manager currently raising money for an India specific distress fund.

Even firms like Mckinsey and Accenture are increasingly focussing on operational consulting in India.”

Some, however, do vouch for their credentials. “They do not create strategic blueprints like most consultants but will actually execute their strategy themselves. They are functional experts,” says India head of one of one of the largest bulge-bracket PE funds.

Source – Economictimes.com

Qatar Sets Up $12 Billion Fund for Distressed Foreign Assets

Qatar, home to the world’s third- largest gas reserves, said it’s creating a $12 billion investment fund to buy distressed assets overseas and will seek to sell shares in the new entity to investors within weeks.

Qatar Holding LLC, a unit of the Persian Gulf emirate’s sovereign-wealth fund, will contribute $3 billion from its assets to the new company, called Doha Global Investment. The new fund will seek to raise $3 billion in a share sale to Qatari nationals, Aladdin Hangari, head of adviser Credit Suisse Group AG in Qatar, said in Doha today. The aim is for the initial public offering to happen in May or June, Ahmad Mohamed Al-Sayed, Qatar Holding’s chief executive officer, said in a telephone interview with reporters.

“The main purpose of this company is to bring the Qatari private sector the opportunity to enjoy the access that Qatar Holding has,” Al Sayed said.

The Persian Gulf nation is snapping up assets across the globe as it seeks to reduce its energy dependency. Qatar Holding agreed with Credit Suisse in November to form asset manager Aventicum Capital Management to boost investments in emerging markets. The joint venture, overseen by Hangari, will operate out of two hubs including a Doha-based unit focused on the Middle East, Turkey and other emerging markets. The Zurich-based bank is helping Qatar set up the new fund.

Range of Assets
The new company is being created “basically to allow the private sector to participate in interesting investment opportunities across the world,” Hangari said. “Its independent and makes its own decisions. It doesn’t have to follow Qatar Holding. Qatar Holding can show it opportunities but the company will decide to invest or not to invest.”

The fund will invest in a range of assets including real estate, bonds and equities and pay a dividend of at least 5 percent in its first year, Hussain Al Abdulla, board member at the sovereign wealth fund, the Qatar Investment Authority, said at a press conference today.

The management of the company will be decided at a later date, Al Sayed said in today’s phone call. While the public offering will only be open to Qataris, Al Sayed said he didn’t yet know if foreign investors would be allowed to invest in the company later on the secondary market.

‘Flexing Muscles’
“Qatar is increasingly flexing its muscles both in the region and on the global stage,” Gus Chehayeb, research director for the Middle East and North Africa at Exotix Ltd, said today in e-mailed comments. The fund’s creation is “in line with the country’s strategy of diversifying its assets from energy and the Middle East, while at the same time extending its influence and brand,” he said.

The fund is being created as economic growth picks up after much of Europe fell into a recession last year and the Chinese economy advanced at its slowest pace since 1999, according to International Monetary Fund data. World economic growth will be 4.1 percent this year, up from 3.6 percent last year, according to the IMF.

Economic expansion and high oil prices are driving prosperity in the Middle East, boosting demand for wealth and asset management services.

Qatar Economy
Qatar’s economy, which has the highest per capita income in the world, advanced at rates of more than 10 percent from 2009 to 2011 as it expanded liquefied gas exports, according to IMF data. Growth slowed after the country started its 14th and final gas liquefaction plant in 2011, with the economy set to expand 4.8 percent this year, down from 6.3 percent in 2012, according to the country’s General Secretariat for Development Planning.

Qatar Holding, the foreign investment arm of the Qatar Investment Authority, earned a 17 percent return on its investments last year, Al Abdullah said today. The fund owns stakes in companies including Barclays Plc, Volkswagen AG, Xstrata Plc and Credit Suisse. The fund bought Harrods Department Store Co in London in 2010.

SOURCE – Bloomberg News

Kazkommerts Bank of Kazakhistan creates two subsidiaries to manage its distressed assets – First among CIS Nations

On 8th November 2012 the Board of Directors of JSC Kazkommertsbank has made a decision to set up two subsidiaries «KUSA KKB-1» Ltd. and «KUSA KKB-2» Ltd. to manage the Bank’s distressed assets.

These companies will be created by the Bank in accordance with the Law of the Republic of Kazakhstan «On changes and additions to certain legislative documents of the Republic of Kazakhstan on regulation of banks and financial institutions to mitigate risks». According to the Law the purpose of the Distressed Assets Managing Company (SPV) is to manage on a temporary basis (up until 1 January, 2018) and further sell the distressed assets of the parent bank representing claims against doubtful and loss category loans as well as assets foreclosed as a result of work-out.
It is anticipated that «KUSA KKB-1» will be managing industrial assets, while «KUSA KKB-2» will be focusing on commercial and residential real estate where construction is in progress or completed.
Factual transfer of assets to KUSA will take place as soon as all required in this respect regulatory permissions are obtained and legal work is completed.

About Kazkommertsbank
Kazkommertsbank (KKB) is one of the largest banks in Kazakhstan and Central Asia with total assets of KZT 2,539.3 billion (US$17.0 billion equivalent) at 30 June 2012.
In addition to its core banking business (retail and corporate) KKB has subsidiaries active in pension fund management, asset management, insurance and brokerage. KKB also has foreign subsidiaries in the Russian Federation, Kyrgyzstan and Tajikistan.
Major shareholders of Kazkommertsbank include Central Asian Investment Company and Chairman of the Board Mr. Nurzhan Subkhanberdin, Alnair Capital Holding, the Kazakh Government through the Samruk-Kazyna National Welfare Fund and the European Bank for Reconstruction and Development.
KKB’s predecessor, Medeu Bank, was founded in July 1990, and re-registered as Kazkommertsbank in October 1991. KKB completed an IPO in GDR form on the London Stock Exchange in November 2006, the first CIS bank to do so, in a deal totaling $845 million. The Bank’s shares are listed on the Kazakhstan Stock Exchange.

Further information can be found at http://en.kkb.kz.

Banks staring at Rs 6000-crore writeoff on loans to debt-ridden Kingfisher Airlines

Banks are staring at a possible Rs 6,000-crore writeoff on loans to Kingfisher Airlines, the biggest writeoff in Indian corporate history, as the continuing delay in resumption of services means even vulture funds are unlikely to invest in the airline.

Lenders, which have been expecting promoter Vijay Mallya to bring in equity funds for more than a year now, are beginning to reconcile to the fact that chances of an equity investor coming forward is remote while the airline’s troubles are compounding.

Almost all banks have classified KFA as a bad loan and made provisions for some losses, but now they are preparing to write off these debtas unrecoverable losses, three bankers familiar with the thinking at KFA’s creditors said on condition of anonymity.

The absence of collateral to back even a third of the total 7,500-crore loans makes it nearly impossible to recover the debt. It is not clear whether the potential writeoff will mean that the banks concerned will record losses in their September quarter earnings. State Bank of India (SBI) has set aside 65% of its 1,400-crore loan.

“It is at a stage where it is doubtful that any reconstruction companies, or even vulture funds, would consider acquiring this portfolio from lenders,” said Siby Antony, managing director and chief executive at Edelweiss ARC, a company that buys distressed assets and makes a profit by reviving their operations.

Banks, including SBI, Punjab National Bank and IDBI, have lent about 7,500 crore to KFA over the past few years as working capital, even as the airline floundered. Its inability to raise equity prompted lenders to turn off the loan tap as well.

Guarantees Difficult to Exercise

Mounting losses led to it defaulting on payments to airports and even salaries to staff. The airport regulator on Saturday suspended Kingfisher Airlines’ licence, citing safety issues.

Mallya had put up shares of United Breweries valued at about Rs 180 crore and a Goa Villa valued at less than Rs 100 crore as collateral, said two of the bankers. That leaves his personal guarantee now.

Bankers believe that some of the guarantees given are so complicated in structure that banks may find it difficult to extract substantial sums while exercising them.

The recent relaxation of government guidelines to allow FDI up to 49% in the aviation sector was seen as a sign of support by the government, but it seems even that support is waning. Civil Aviation Minister Ajit Singh said Mallya would find it “very difficult” to revive the carrier, Bloomberg News reported. “Everybody hoped and presumed, because it’s Vijay Mallya, he’d be able to marshal resources. Everyone is disappointed,” the report said.

Bankers have written off loans to airlines in the past, losing more than four-fifths of their loans to aviation companies like ModiLuft, Damania, East-West Airlines, Paramount and Archana Airways when they failed. But those losses, at about Rs 300-400 crore pale before what Kingfisher owes.

Experts fault banks for not having learnt lessons from the past. Indeed, many believe that banks, by converting a portion of their loans into equity in 2010 at a premium, may have committed a cardinal sin by not getting enough equity from the promoters. “There are lessons to be learnt on how to structure a loan to the airline industry,” said Jitender Balakrishnan, former DMD of IDBI Bank.

“While lenders could be excused for their failure in ModiLuft, Damania, and East-West Airlines since they started operations just when the industry was nascent, the experience they gained from these failures does not seem to have been put to use in dealing with KFA. Therefore, lenders have not been cautious enough in lending,” he added.

Source – Economic Times

FDI spells cheer for Retailers in Distress

Private equity investors Bain Capital and TPG have transferred their shares in Lilliput Kidswear to promoter Sanjeev Narula, ending a months-long public spat and helping the kidswear brand join a growing club of struggling retailers making a comeback to woo potential foreign investors.

India’s recent decision to allow foreign companies to own up to 51% stake in multi-brand retail chains and 100% in single-brand retailing has energised defunct and struggling local retailers such as Subhiksha and Vishal Retail to ramp up in the hope of attracting FDI.

In a compromise deal, both Bain and TPG have transferred their entire 45% share in Lilliput—bought for $86 million in 2010—to Narula, who, in turn, has withdrawn all the cases filed against the private equity firms, a person with direct knowledge of the development told ET.

The two PE firms have written off their entire investment in the country’s largest kidwear brand, the person said. While the transfer of shares to the promoter is for consideration, its value is not yet finalised. Narula, who is now 100% owner of Lilliput, confirmed the development but refused to divulge details. Spokespersons of both Bain Capital and TPG refused to comment.

The dispute between the promoter and investors started in September last year when Bain Capital and TPG withdrew their consent for Lilliput’s initial public offering, saying they received anonymous calls casting doubts on genuineness of the company’s books. In response, Narula moved the court, alleging that the investors were trying to seize control of the company.

FDI breathes fresh life into bleeding retailers; Lilliput promoter Sanjeev Narula and PEs Bain & TPG settle differencesFDI breathes fresh life into bleeding retailers; Lilliput promoter Sanjeev Narula and PEs Bain & TPG settle differences

The settlement of the dispute is good news for all stakeholders—investors, partners and employees—as it not only avoids the possibility of a long and messy court battle but also opens the door for possible foreign direct investment in the firm. A person with direct knowledge of the matter said Lilliput, which has 240 stores across the country, is already in talks with three strategic investors from Japan, China and South Korea.

Lilliput is not the only retailer showing some urgency to put its house in order after the opening up of the sector to foreign investors. Other defunct and struggling retailers such as discount retailers Subhiksha Trading Services and Vishal Retail too see FDI as a window to ramp up and, if deemed, sell off.

R Subramanian, founder of now defunct Subhiksha Trading Services Ltd, made a public appearance after years at a retail conference in Mumbai this week, and talked about restarting full-fledged operations of his mothballed discount retail chain. “With the opportunity being provided by FDI, I think we need to resolve the issues with the lenders, hopefully by this fiscal end,” he told ET on the sidelines of the Indian Retail Forum on Wednesday.

Private equity investors Bain Capital and TPG have transferred their shares in Lilliput Kidswear to promoter Sanjeev Narula, ending a months-long public spat and helping the kidswear brand join a growing club of struggling retailers.

Private equity investors Bain Capital and TPG have transferred their shares in Lilliput Kidswear to promoter Sanjeev Narula, ending a months-long public spat and helping the kidswear brand join a growing club of struggling retailers.
Subhiksha’s nationwide network of 1,600 stores collapsed when the company ran out of cash to service its debt of about Rs 750 crore and could not manage staff salaries, vendor payments and other unpaid bills running to crores of rupees.

Since then, it has reopened nine stores under the franchise route and now plans big-scale expansion. “We are looking to expand beyond 1,000 (stores),” Subramanian said. Another peer that collapsed during the slowdown in 2009, Vishal Retail, too, is on an expansion drive under its new owners—an alliance ofTPG Capital and Shriram Group.

Since acquiring the debt-laden retailer in March last year from its promoter Ram Chandra Agarwal, TPG-Shriram alliance has closed about a dozen loss-making stores in various cities and pumped in Rs 200 crore to nurse the retailer to financial health.

Currently Shriram’s arm Airplaza Retail and other franchisees operate more than 140 Vishal Megamart stores in 24 states. The alliance plans to add 15 stores by January. Industry insiders say TPG wants partly or fully exit Vishal Retail after nursing it back to a financial health and would try to capitalise on the new FDI rules. Gundender Kapur, chief executive of TPG Wholesale, declined to comment.

Source – Economic Times

Suzlon Energy will default on $209-million FCCB- Last minute restructuring Efforts On

Loss-making Suzlon Energy, which binged on overseas acquisitions with borrowed money during the boom years of 2005-2008, is set to default on foreign loans worth more than $200 million after offshore lenders refused to give more time for repayment.

Suzlon’s request to extend the date for repayment of $209 million worth of convertible bonds by four months to February 11 was rejected by bondholders, the company said in a statement on Thursday. The announcement sent its shares crashing by more than 5%. This would be the biggest default by an Indian company after pharma major Wockhardt failed to pay bondholders in 2009.

“I don’t have enough resources to meet the obligation today. So, it’s a potential default,” a senior company executive told ET.

The default may also have breached covenants on the company’s FCCBs that mature in 2014 and 2016, and which are together worth $270 million, two people close to the development said. Bondholders may seek early repayment on these two bonds, adding to the woes of the cash-strapped wind turbine maker that has been struggling to raise money and recover payments from clients amid a sharp slowdown in wind energy sales.

Suzlon shares later recovered to end the day down 2% at Rs 16.20.

SuzlonBSE -1.54 % is the world’s fifth-largest wind turbine maker. In 2007, it purchased Germany’s REpower for around Rs 8,000 crore, in the process adding a debt of 14,000 crore. The subsequent slowdown in wind energy sales and withdrawal of tax incentives in the budget pushed the company deeper into the red. It has not made an annual profit in the past three years.

“The default would hurt Suzlon’s creditworthiness. The company does not have further headroom to raise loans,” Ruchir Khare, analyst at Kotak Securities, said.

“It is not good news,” the company executive quoted above added.

Lenders may Consider Restructuring

“But we will continue to engage with our bondholders constructively and progressively with a solution-oriented approach,” he added. In July this year, Indian lenders to Suzlon helped out when the redemption of the first tranche of convertible bonds worth $360 million became due. But this time they have declined requests for a similar arrangement.

But in a move that may give the company long-term succor, the lenders have agreed to consider restructuring of Suzlon’s debt to bring down its costs. “The current default of $220 million is not much considering the company’s overall debt profile. But it has other implications. We have to negotiate with bondholders and arrive at a settlement,” said Santosh Nayak, deputy managing director of State Bank of IndiaBSE -0.83 % said. Nayak said the asset has yet not defaulted in the bank’s books and, therefore, stands a chance to be restructured. “The company has a lot of cash flows and a healthy order book. The company has a subsidiary called REpower that is debt free and has huge cash balance,” he added.

Suzlon executives did not comment on the restructuring, but said they did not want to get into hypotheticals on the issue of cross defaults. “Constructive dialogue continues and we remain optimistic of arriving at a solution that works for all stakeholders,” they added.

 

Source – Economictimes.com

NPA woes: Why banks are not selling bad loans

Escalating bad loans have not yet made a strong case for banks to sell their distressed portfolios to asset reconstruction companies (ARCs). Almost every such company is struggling to get business from banks, whose repeated assurance does not translate into action. The bane of contention is the pricing issue. The ever lasting debate over it refuses to die.

 

“It is a commercial call that banks take,” B K Batra – DMD, IDBI Bank   tells moneycontrol.com.

 

“There are other options. ARC is one of the options. Banks will adopt the option, which is more economically viable. Banks can also recover those loans of their own without reaching ARCs. A cash transaction gives liquidity to banks but it varies from case to case. It also depends on the availability of resources from a particular ARC. So, you make a comparison for what is more beneficial for a bank,” he says.

 

ARCs acquire stressed assets from banks at a mutually agreed upon price and then recover it from the loan borrowers and thereby earn commissions from such recoveries. While most banks desire to transact in cash, ARCs look to buy assets with a combination of cash and security receipts (SRs) in ratio of around 30:70 on an average. They raise funds from their promoters. There are around 14 ARCs in India. Arcil is the biggest one with around 80% market share. Mostly banks along with other financial institutions promote them.

 

SR is a kind of security to be subscribed by select qualified institutional buyers including banks. As and when an ARC recovers loans, it repays back to those SR holders. In case of more than expected recovery, the latter gets incentives and vice-a-verse.

 

“An ARC pays majority in SRs while buying distressed assets. If the net present value of those SRs is less than their face value, banks have to provide for mark-to-mark losses. Another issue is that ARCs themselves may be running short of money. They also need funds to pay banks in cash transaction,” says M Narendra, CMD, Indian Overseas Bank  .

 

The counter argument as some ARCs give is that SRs are rated instruments wherein banks can always stick to higher ratings. For example, a rating grade of ‘RR1’ suggests 150% recovery chances while RR2 enjoys the possibility at 125%. SRs are considered as standard upto the rank of RR3 ratings (100%). However, RR4 is a poor rating wherein the chance of recovery is only 80%.

 

“In case of 100% cash transaction, any upside (recovery in excess of 100%) is retained by ARCs. However, banks keep to the tune of almost 80% of the excess recoveries when it comes via SRs. A combined recovery effort is made when a bank sells bad loan portfolio in a transaction with majority in SRs. It doubly enhances the chance of recoveries,” says P Rudran, MD & CEO of Arcil.

 

He suggests that the best route to weed out non-performing assets from the financial sector is through ARC mechanism. ARCs should be seen as an extended arm of banking system. It may not possible for banks to curb the menace of bad loans single handedly. The rising number of bad loans proves that.

 

In a recently held press conference, SBI  boss Pratip Chaudhuri clearly made it clear that the lender was not interested to do business with ARCs unless they buy assets in cash transaction.

 

Rating agency Crisil estimated that restructured loans would rise to Rs 3.25 lakh crore for all banks by March, 2013. With increasing number of borrowers failing to repay their loans right in time, the ghost of bad assets keeps on rearing its ugly face.

 

“Banks will sell their bad assets to ARCs but at a later stage. The provisioning requirement for non-performing assets will rise as long as borrowers continue to fail repayments. In turn, this will hit banks’ profitability and then most lenders are likely to reach out ARCs. There is no threat to ARC industry in India,” says Nirmal Gangwal, MD, Brescon, an advisory firm.

 

Banks are mandated to make a provision of 15% for sub-standard assets, the first level of NPA wherein a borrower fails to repay for more than 90 days and then 30% for doubtful assets, no repayment for more than one year. Gradually, the provisioning requirement reach to 100% with the category of the assets turns fully bad.

 Source – Moneycontrol.com

Knock for Deccan Chronicle’s Lenders

Banks may be forced to write off about three-fourths of their Rs 4,000-crore loans to media company Deccan Chronicle Holdings due to skimpy collateral, and slow progress in the investigation into possible fraud due.

About two-dozen lenders, including Canara Bank, Axis Bank, ICICI Bank, Corporation Bank and Yes Bank are wrangling over what could be recovered from the once-sprawling media group that has fallen on bad times.

“Even if we are able to recover funds from the sale of Deccan Chargers, the recovery could be just about Rs 1,000 crore,” said a banker who lent money to the company but did not want to be identified. “This is also on the assumption that we are able to sell the cricket franchise.”

Lenders are in a fix as the main business of the company may be losing value fast and an early sale of its Indian Premier League cricket franchise Deccan Chargers looks unlikely as the Board of Control for Cricket in India and potential buyers have set stiff conditions.

Banks may be forced to write off about 3/4 of their Rs 4K-cr loans to Deccan Chronicle Holdings due to skimpy collateral, & slow progress in the investigation into possible fraud due

A decision on admitting the company into the corporate debt restructuring cell may also get delayed since the headless Canara Bank, the lead bank, is unable to proceed with the forensic investigation into the company. The bank’s chairman and managing director, S Raman, retired last month and the government is yet to appoint a successor.

“The forensic audit is expected to take a month as the Canara Bank chairman and managing director has retired. The appointment of the new head is still pending,” a senior public sector bank official in the know of the development said not wanting to be named. The CDR cell will discuss the matter in its meeting on October 19, said a person familiar with the developments.

Canara Bank has lent Rs 330 crore to Deccan Chronicle Holdings and ICICI Bank has lent Rs 490 crore. Both have classified the loans as bad loans. Canara Bank officials did not comment and ICICI Bank did not respond to an email query.

Recently, the Bombay High Court asked Deccan Chronicle to give an irrevocable and unconditional bank guarantee of Rs 100 crore to the Board of Control for Cricket in India on or before October 9.

The bank guarantee would be in force for one year, said Justice SJ Kathawala, who heard a petition filed by DCHL challenging the BCCI’s decision to terminate the contract of Deccan Chargers franchise. The court, on September 26, had appointed retired Supreme Court judge CK Thakkar as arbitrator to resolve the dispute between BCCI and DCHL.

Source – Economic Times

Abhijeet Group may approach banks to seek restructuring of loans

The Abhijeet Group, which is being investigated by the Central Bureau of Investigation (CBI) for its alleged involvement in the indiscriminate allotment of coal blocks, is likely to approach banks for restructuring its loans.

“Select units of the company could approach banks for a debt recast. They are still in dialogue with the banks,” said a banker in the know of the development. “We are a bit cautious after the CBI raids on the promoter and we are monitoring the developments,” said another banker with exposure to the company.

CBI, which is investigating allotment of coal blocks by the government to little-known companies around the country, recently questioned its promoter, Manoj Jayaswal, about his association with Vijay Darda of the Lokmat Group and their role in securing coal block allocations.

“The company is considering all the options open to it and based on the analysis of these options, a final decision shall be taken. Apart from Abhijeet MADC Nagpur Energy, all other operating companies of Abhijeet Group are operating normally and the ongoing projects of the group in the power, roads and steel sector are making satisfactory progress,” said Abhishek Mathai, deputy manager-corporate communications at Abhijeet Group.

The group estimates its loans to be about Rs 1,095 crore, but bankers tout a higher figure of close to Rs 3,000 crore.

“The company is fully committed to meet its debt obligations and does not seek any relief (except of a temporary nature) and a final decision would be taken in consultation with the lenders of the company,” said Mathai.

The group’s firms, Multi-Modal International Cargo Hub at Nagpur and the MIHAN SEZ power plant, have run into difficulties due to lack of various regulatory clearances. CBI is investigating Jayaswal’s role in coal block allocations to AMR Iron and Steel, JAS Infrastructure and JLD Yavatmal Power.

Source – Economictimes