Canada Pension to invest $525 m in stressed assets

Big foreign investors seem to be gradually warming up to the idea of investing in distressed assets in the country.

Kotak Mahindra Group on Monday signed an agreement with Canada Pension Plan Investment Board (CPPIB) to invest up to $525 million (about ₹3,523 crore) in stressed assets.

According to a joint statement issued by Kotak Mahindra Group and CPPIB, the latter could invest up to $450 million (about ₹3,020 crore).

The agreement to invest in stressed assets comes in the backdrop of the Reserve Bank of India setting a March 2017 deadline for banks to clean-up their balance-sheets. Credit rating agency Crisil recently cautioned that the asset quality problems being faced by public sector banks (PSBs) will remain acute and continue through most of the next fiscal.

The resultant impact on profitability and capitalisation can further dent their credit profiles over the medium term.

The agency assessed that significant stress in the corporate loan book of PSBs is expected to result in their weak assets ballooning to ₹7.1 lakh crore by March 31, 2017 (11.3 per cent of total loan book) from around ₹4 lakh crore as on March 31, 2015 (7.2 per cent of loan book).

The joint statement said the investment will address the growing opportunity arising from the current stress in the Indian banking and corporate sectors, and has a flexible investment mandate providing customised financing solutions to companies, in addition to investing in stressed asset sales by banks with the aim to restructure, recover and turnaround companies in distress.

The investments will be channelised into Kotak Special Situations Credit Fund.

It is a new fund/ business line under Kotak Investment Advisors Ltd (the alternative asset management business of the Kotak Mahindra Group). The fund will manage investments in the stressed assets space along with Phoenix Asset Reconstruction Company, an affiliate of the Kotak Mahindra Group.

S Sriniwasan, CEO, Kotak Special Situations Credit Fund, said “…The current environment has created a much larger opportunity that requires significant capital commitment.

“We are delighted to have a world-class institution such as CPPIB put patient capital to work, backed by strong and active asset management, to capitalise on the stressed assets market.”

With the government liberalising foreign direct investment framework for ARCs, Sriniwasan said the stars are sort of aligning themselves for asset sales by banks.