Project Sashakt to create market for stressed assets
MUMBAI: Multiple asset management companies, asset reconstruction companies and alternative investment funds can bid for stressed assets under Project Sashakt, said Punjab National Bank chairman Sunil Mehta, who led a committee which came out with a report to help fix Indian banks’ bad loan problem. Mehta also said that the ultimate objective is to create a vibrant market which includes online trading of these stressed assets. Edited excerpts from an interview.
Who will have ownership of the stressed asset?
The moment banks sell it to asset reconstruction companies and these ARCs will in turn transfer the ownership of asset to the Alternate Investment Fund (AIF).
The AIF then becomes the effective owner because the intent is that the promoter if at all he is there becomes the minority. His control goes below 24%. The new owner which is the ARC and AIF are the ones that controls the asset and hence their stake will be 76% and above. No one, even the promoter, should have blocking rights.
How will the ARC repay these nonconvertible debentures (NCD) once they come up for redemption?
Once the asset moves to the ARC, it gets restructured at the ARC level. Then it goes into the AMC – AIF, then the AIF subscribes and buys it and then takes the asset over and runs the asset.
The AIF subscribes to those NCDs which were issued when the asset was under ARC. The proceeds of that the ARC goes to repay the bank. ARC becomes cash-neutral because the AMC has bought it over and banks get paid out within 60 days. The asset could issue optionally convertible debentures or debt rated debentures. Some upside will come over a period of time.
Will stressed assets in the power sector be the main focus of the AMCAIF?
We have taken the entire stressed portfolio. We have not done a full analysis of what those 200 accounts constitute. Even in those 200 accounts with exposure of ₹500 crore and above, power will be a fairly big component. Power, textile, industrial, roads will be the principal sectors.
Can an Edelweiss or KKR set up an AMCAIF structure and participate in the bidding?
State Bank of India (SBI) has volunteered to participate because somebody needs to put in that seed capital to get it going and I’m quite sure P.S. Jaykumar (chief executive officer) of Bank of Baroda will also participate. Other banks will take their own calls.
Anybody else who wants to initiate AMC-AIF structure are more than welcome. There are 23 ARCs. The market is speculating why should there be another ARC. If one of the ARCs where banks have ownership like ARCIL or SIDBI run ARC can be used, then why not? The recommendations do not suggest one AMC or one AIF. It is a recommendation that a market be created that allows AMC to come into play.
Like a typical AMC you can have different funds. Ultimate objective is this is too big a market for one large AMC-AIF to be there. For instance, earlier, a mutual fund was a Unit 64. Then the mutual fund industry evolved and many AMCs took birth and now it became a vibrant market. Now we hope that over a period of time, it becomes a vibrant market and stressed assets accumulation also starts coming down.
How does the AMCAIF model align with Reserve Bank of India’s February 12 circular?
The resolution plan should be implemented within 180 days. Even the bank-led resolutions also suggest 180 days. If it cannot be sorted out within this deadline, then it goes to National Company Law Tribunal. (NCLT).
A large number of assets fall between ₹500-2000 crore where the AMC model can be implemented.