Avenue Capital unit plans to raise Arcil stake to 69.6%

Mumbai: An Avenue Capital entity has proposed to acquire 44.6% in Asset Reconstruction Company of India (Arcil) from ICICI Bank, Punjab National Bank, IDBI Bank and ICICI Home Finance for a consideration of nearly ₹840 crore, said people aware of the development.

Avenue India Resurgent Pte Ltd, a subsidiary of Avenue Capital, which currently holds a 25% stake in the country's oldest asset reconstruction company (ARC), will increase its stake to 69.6% upon acquiring equity from the four shareholders.

The deal is subject to approval from the Reserve Bank of India, the people cited above said. The enterprise value of Arcil would be pegged at nearly ₹1,900 crore, one of them said.

IDBI Bank, which holds 19.18%, will receive around ₹360 crore, ICICI Bank with 13.26% will receive ₹250 crore, while PNB with a 10% equity holding will get ₹188 crore. ICICI Bank's housing finance subsidiary with 2.26% will earn ₹42 crore, one of the persons said. The transaction will reflect in the earnings of these four shareholders once the deal is closed.

The high-level committee of each of the four entities have approved the proposed sale of their Arcil stakes to Avenue, the same person said.

"The bank has not entered into any transaction/agreement to sell its stake in M/s Arcil as on date," PNB said in an email response.

Opportune Time for Avenue
Avenue Capital, ICICI Bank, ICICI Home Fin and IDBI Bank did not respond to requests for comment.

Avenues' move to increase its stake in Arcil comes at a time when existing ARCs will be gearing to face stiff competition from the newly formed government-backed National Asset Reconstruction Company of India, said one of the persons cited above.

But it is also an opportune time for Avenue to strengthen its position in India because the RBI is considering a host of reforms as recommended by the Sudershan Sen panel on ARCs, the same person said.

Arcil's assets under management (AUM), based on security receipts issued, increased to ₹13,833 crore as on March 31 2021 from ₹12,358 crore a year ago, according to the disclosures made in Arcil's annual report.

In the fiscal year 2020-21, Arcil acquired stressed loans with principal dues of ₹2,485 crore from banks and finance companies for a consideration of ₹1,964 crore.

The aggregate collections stood at ₹853 crore for the same period under review. "Restrictions due to Covid-19 related lockdowns severely impacted working of the company which pushed down the collections for FY 21," Arcil stated in its annual report. For an ARC, collections imply recoveries from the resolution of bad loans acquired from banks and finance companies.

State Bank of India with 19.95% is the second-largest shareholder after Avenue. GIC subsidiary Lathe Investment Pte Ltd has 5% stake while Karnataka Bank, South Indian Bank and Federal Bank jointly hold 5.2% in the ARC.

Avenue first acquired equity in Arcil three years ago in November 2018 from Singaporean sovereign wealth fund GIC, IDFC, Barclays, Karur Vysya Bank, FirstRand Bank and Ashmore Capital.