Caisse de dépôt et placement du Québec (CDPQ), one of North America’s largest pension fund managers, on Monday said it will acquire 20 per cent equity stake in Edelweiss Asset Reconstruction Company (EARC).
In addition to CDPQ’s proposed 20 per cent stake, the other shareholders in EARC will be a Scandinavian insurance company with a 4 per cent stake, 16 per cent will be held by Indian investors and the balance by the Edelweiss Group.
The acquisition and shareholding are subject to standard closing conditions, completion of legal documentation and approval by regulatory authorities.
This move to pick up a stake in EARC is part of CDPQ's long-term partnership agreement with Edelweiss Group, a diversified Indian financial services company.
As part of the long-term partnership between the two groups, CDPQ (Caisse de dépôt et placement du Québec) will target annual investments of Rs 1,250 crore in stressed assets and specialized corporate credit segment, totalling around Rs 5,000 crore over a four-year period.
The partnership agreement includes target investments by CDPQ of Rs 5,000 crore over four years that will provide Edelweiss Group with capital to invest in stressed assets and private debt opportunities in India.
The ARC, part of Edelweiss Group’s diversified financial services business, will invest in assets with the aim of restructuring debt and turning around companies. These investments, to be carried out by Edelweiss ARC and through different Edelweiss funds, will result in the purchase of non-performing loans from banks and investments in private debt of growing Indian companies. With about Rs 30,000 crore of stressed assets in its kitty at last count, Edelweiss ARC controls over the quarter of the market share in this segment.
Over the last few years, Edelweiss ARC has been investing between Rs 1,000 crore and Rs 1,500 crore in the stressed debt segment, Rashesh Shah, Chairman and CEO, Edelweiss Group, said. He expects banks to sell Rs 30,000-40,000 crore of stressed assets as cash and security receipts in the next four years. This will be up from the roughly Rs 14,000-15,000 crore worth of assets that they have put on the block till date, Shah said.
Rashesh Shah, Chairman & CEO, Edelweiss Group, said, “Recent reforms, like the Bankruptcy Act have the potential to transform the pace of reconstruction and resolution in India’s stressed and distressed market thus creating a much larger opportunity. We are pleased to partner with CDPQ, one of the largest and most respected pension fund management companies in the world, to help finance, restructure and grow financially viable businesses in India.”
“By becoming a partner of Edelweiss, CDPQ is looking to support its growth for many years to come and, ultimately, participate in the emergence of new innovative and successful businesses in India,” said Michael Sabia, President and CEO, CDPQ. Apart from the investment in Edelweiss, the pension fund also has an agreement with Tata Power and other players to form a joint venture that will buy out troubled power assets in the country.