Edelweiss' right pick for its ARC - Sibi Antony of IDBI

Edelweiss Alternate Asset Advisors (EAAA), an arm of Edelweiss Capital is looking at launching a $200-million distressed asset fund under Sibi Antony (Ex-IDBI). I’ve met Sibi often at IDBI (Merchant Banking Division) during my earlier stint in corporate service and have found him to be an extremely capable manager. He has been instrumental in recovering a large portion of IDBI NPAs and in managing their SASF (Stresses Assets Stabilization Fund) ; hence must have a ready database of owners of stressed assets as well. I am sure he has several aces up his sleeves to turn them around (or to hive them off).

In the coming weeks, I will be closely watching him take on some of the biggest hurdles in ARC business I’ve outlined viz. –

a) Banks' reluctance to minimum 20% haircuts while transferring stressed assets to ARC;
b) Non rationalization of stamp duty incidence while transferring dud assets;
c) Govt. stand on triggering of takeover code when debt is swapped into equity in terminally ill companies;

Still the distressed asset market size is about $35 billion and the nine odd ARCs in India have of late been a bit passive since the stock market and realty markets are going thro a lull phase. May be if the conditions (high crude price, rise in Bank NPAs, inflation and liquidity squeeze) persist, Sibi will be looking at a much larger market size where his stated strategy of focusing on corporate / SME assets with accent on single assets than portfolios should payoff. But then much depends on bringing around lenders to accept ARC terms and getting the borrowers to accept the strategic and financial bitter pill offered by undertakers like Sibi. Sibi will have a great support from Rashesh Shah and his team of I-Bankers in finding premium buyers to these stressed assets anyway - and much less bureaucracy to deal with unlike with his previous employer IDBI.

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"Good luck, Sibi... " [Now some sales pitch.] "Call me if you have some [not so] bad apples to get rid of, fast "

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ARC or debt collectors ?

The activities of Asset Reconstruction Companies (ARCs) finally seem to have picked up in India. Using the topicality of the subject, I had made an earlier post here. The pace of reforms in this billion $ industry was somehow slackening. To enthusiasts like me, it used to be more exciting to watch the paint dry or the grass grow. Ah, but then they do give some mild surprises like what I found in The Financial Express here.

I somehow keep asking myself this question. Our Banking system itself has been subjected to a fairly high level of oversight by both RBI and Finance Ministry. They have to maintain a 9% Capital Adequacy Ratio (CAR), SLR, CRR requirements imposed by RBI through its annual credit policy besides the regulations flowing from Banking Companies (Regulation) Act. Despite such elaborate supervision, Banks have managed to create a mountain of overdue loans or non-performing assets (“NPA”).

If it happens despite regulations, may be it’s time to relax them. Something similar is brewing in the US over Sarbanes Oxley Act, where there is a mounting pressure to loosen the strings by the Government. Otherwise ARCs merely end up being debt collection agents of the Banks rather than resuscitators of ailing businesses or turnaround artists. Vulture funds or Private Equity model should work fine, though with some brutal maneuvers deservedly on borrowers who dodged repayments, that led to the NPA creation in the first place.