Billionaire Kumar Mangalam Birla, chairman of Aditya Birla Group (Photographer: Dhiraj Singh/Bloomberg)

Kumar Mangalam Birla Eyes India’s Stressed Assets 

Kumar Mangalam Birla plans to enter the asset reconstruction space as the head of $41-billion Aditya Birla Group finds it an attractive bet amid growing efforts to resolve bad loans.

“We’ve applied for a licence,” Birla said in an interview with BloombergQuint after the listing of Aditya Birla Capital Ltd. “This is a very good time to be entering the asset reconstruction space,” he said.

Birla was referring to the pile-up of bad loans, which have soared over Rs 8 lakh crore. The government has pushed for prompt resolution of these stressed assets, letting the Reserve Bank of India step in and speed up the process by recommending banks take companies to insolvency resolution. Banks in the past have shied away from resolution fearing they would have to take haircuts to sell the distressed businesses.

This makes an “attractive” proposition for Birla as “there is more supply in the market in the form of stressed assets than before”. He plans to leverage the Aditya Birla Group's experience in multiple businesses for turning around such companies.

We have huge operating experience across sectors as a group which we’ll look to bring to this business as and when we do get into it.
Kumar Mangalam Birla, Chairman, Aditya Birla Group

Ajay Srinivasan, chief executive of Aditya Birla Capital Ltd., the company under which the business will be housed, said the group will bring a “very different play” to asset reconstruction which has traditionally focussed on creating value by selling assets. “We see that moving to operational turnarounds because people will be turning around actual businesses”, he added.

Besides that, there is now a greater need for cash to be deployed upfront in the ARC business, pointed out Srinivasan as he explained what drew the group to the business.

The Birla asset reconstruction company will be sector agnostic but will focus on smaller to medium enterprises rather than trying to turn around very large corporates or retail businesses, said Srinivasan. “We are not going to be doing very large deals,” he added.

The challenge for an ARC would be risk management, which Birla said he is cautious about. The quality of assets on that they build their books on will be “very important”, he added.

While plans are still at an early stage, Birla said the ARC could set up a strategic fund or a distressed fund. He also did not rule out a strategic partner who could bring in “appropriate funding”.