Ambit Capital Looks To Exit ARC Venture 

Ambit Private Ltd. is in the final stages of exiting its equity investment in the asset reconstruction company venture it started with U.S.-based JC Flowers & Co., three people in the know said.

Stressed asset investor Eight Capital Management LLC and London-based Emso Asset Management will together buy the Indian asset management company’s 47.5 percent stake in the ARC, the people said on condition of anonymity. The two investors will also purchase a 5 percent stake owned by serial investor Jerry Rao in the venture to assume majority control of the ARC. JC Flowers, one of the world’s largest distressed asset investors, will continue to hold its 47.5 percent stake in the venture.

KM Jayarao, executive vice chairman at Ambit Flowers ARC, has already put in his papers, while P Rudran, the ARC’s chief executive officer, quit in February, the people cited earlier said.

Ambit Flowers ARC, which started operations in 2017, was an effort by both partners to tap into India’s large distressed asset market. However, distressed assets are no longer a part of Ambit’s investment strategy in India, prompting the asset manager to exit the venture. Eight Capital tied up with Emso Asset Management last year to target distressed asset investments in India through the alternative investment fund route, the third of the three people cited earlier said.

Ambit, JC Flowers and Emso Asset Management didn’t respond to BloombergQuint’s emailed queries. Ravi Chachra, chief investment officer and managing director of Eight Capital, said that the company doesn’t respond to market speculation.

The ARC business in India has attracted many global investors as it's one of the most lucrative methods for the banks to dispose of the stressed assets on their loan books. Bad loans on the books of listed Indian banks has crossed the Rs 10-lakh crore mark, according to RBI data. Banks are trying to either resolve these assets themselves, resolve them through the insolvency route or sell them to bidders, including ARCs.

New York-based Avenue Capital Group announced its investment in India’s oldest ARC, Asset Reconstruction Company (India) Ltd. or Arcil, last week. Avenue is likely to acquire more stake in the ARC as banks, which had originally promoted Arcil, are looking for an exit. In 2018, Aditya Birla ARC, a subsidiary of Aditya Birla Capital Ltd, had announced a joint venture with U.S.-based Varde Partners to purchase distressed assets in India’s mid-corporate segment.

Earlier this year, private equity investor KKR & Co., too, announced the setting up of a new joint venture, its second such attempt in India. Mint newspaper reported in February that KKR had first received an approval from the Reserve Bank of India in 2017 to set up an ARC. It failed to capitalise on this, leading to the lapse of the license.

Blackstone Group LP purchased 51 percent stake in International Asset Reconstruction Company Pvt. Ltd. to start its distressed asset business in India in April last year. Similarly, Bain Capital announced a tie up with Piramal Enterprises to start the India Resurgence Fund, which also owns the India Resurgence ARC, in 2017. In 2014, Hong Kong-based SSG Capital had purchased 49 percent stake in Assets Care & Reconstruction Enterprise Ltd.

Separately, international investors like Bank of America Merrill Lynch have also been actively scouting distressed assets put up for sale by the banking sector. Recently, a group of investors led by BofAML purchased the entire Rs 3,300 crore worth loans of Jayaswal Neco Industries Ltd. from banks, Bloomberg had reported on March 19. Earlier this month, Bloomberg had also reported that Deutsche Bank AG was also looking to set up an ARC in India.

International investors had chosen to start ARC ventures with Indian partners as they would provide necessary guidance in the local distressed markets. However, despite considerable investments over the last few years, not many deals have closed. It’s only now that there has been a resurgence in the ARC business, with banks looking to exit their loan exposures and book recoveries at the earliest.

BloombergQuint reported last week that ARCs had managed to purchase Rs 22,000-crore worth loans from the Rs 40,000-crore worth bad loans that banks had put up for sale in the current financial year. The banks had managed to recover about 45-50 percent of the book value of these loans through these sales, better than 40-45 percent recoveries in the last financial year.