ICICI Bank & Apollo to Set up Asset Reconstruction Firm

ICICI Bank, which is the largest private sector lender of the country, has tied up with private equity firm Apollo Global Management and Aion Capital Management. The aim is to set up an asset reconstruction company (ARC) in India. Meanwhile, ICICI Bank share price is currently trading at Rs 248.30, down by 0.48 per cent or 1.20 points.
In a statement, the lender said they have entered into a MoU (memorandum of understanding) to work together for debt resolution in India, in an effort to revitalize as well as turnaround over-leveraged borrowers.
The statement stated that the objective of this collaboration will be to streamline the operations of borrowers as well as facilitate deleveraging and arrange additional funding on the basis case-by-case. This collaboration aims to bring together ICICI Bank’s experience and understanding with respect to the corporate sector of the Country and Apollo’s experience of more than two decades in private equity as well as alternative investments, including special situations.
The market analysts who are familiar with this development said that ICICI Bank will have 30 percent stake, while the remaining stakes will be picked up by Apollo if the amendment suggested in the Union Budget is passed. If the Bill is not cleared, then they will find a third partner to pick up another 20 per cent stake.
In the Budget, Mr Arun Jaitley, the finance minister had proposed to amend the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act, 2002. This will allow sponsors to hold 100 per cent equity stake in ARCs and that non-institutional investors would also be allowed to invest 100 per cent in security receipts. The Aion fund was previously established as a strategic partnership between ICICI Venture Funds Management Company and an affiliate of Apollo Global Management.
ICICI Bank already holds 13.26 percent in another ARC, Arcil. Familiar sources said that with this development the lender is not immediately looking at selling out this stake. They will take a call on it in due course. Despite having an investment in Arcil, the Bank is believed to have gone ahead with the plan of setting up another ARC because as a result of multiple partners and a small stake, it wasn’t possible for the lender to make any significant decisions on its own. The lender has been facing asset quality pressure for the past few quarters.
The interest by ARC players has increased after the Department of Industrial Policy and Promotion announced in a notification that 100 per cent foreign direct investment (FDI) will be allowed in reconstruction companies under the automatic route.
According to an Assocham report, the average ARCs recovery rate in the Country has been around 30 percent of the principal and the average time taken has been anything between four & five years.
These ARCs in India has been facing a problem due to capital constraints as well as disagreeing on valuation with the banks. However, considering that the total gross NPA in the banking sector at the end of the financial year 2016 was Rs 5,41,763 crore (7.43 percent of total advances), these ARCs do see a big opportunity in India. Several other players like KKR and Brookfield, among others, are also investing in the ARC space.
ICICI Bank share price opened at Rs 249.45 this morning from a previous closing of Rs 249.50. ICICI Bank is one of the Top 500 shares recommended by Dynamic Levels. Get all the historical share price of the Company at ICICI Bank share price history.