Kotak Mahindra launches $525 million stressed asset fund with CPPIB

Mumbai: Kotak Mahindra Group has tied up with Canadian Pension Plan Investment Board (CPPIB) to launch a $525 million fund to invest in the stressed asset market in India.

The Canadian pension fund manager will have the option to invest up to $450 million in this partnership, Kotak Mahindra Group said in a statement on Monday.

“This investment will address the growing opportunity arising from the current stress in the Indian banking and corporate sectors,” the statement said.

The fund has a flexible investment mandate—providing financing solutions to companies in addition to investing in stressed asset sales by banks with the aim to restructure, recover and turn around companies in distress—it added.

“Through this agreement, CPPIB will selectively invest in assets that we believe will deliver value in line with our long-term investment mandate,” said Adam Vigna, managing director, principal credit investments, CPPIB.

On 22 January, Mint had reported that Kotak Mahindra Group and CPPIB are in the process of launching a $500-600 million stressed asset fund in India, before the end of the financial year.

The fund will work closely with Kotak Mahindra Group and its affiliate, Phoenix Asset Reconstruction Company (ARC) Pvt. Ltd, to locate opportunities in the stressed asset market in India.

Kotak Mahindra Bank currently owns 49% stake in Phoenix ARC.

Kotak and the CPPIB have been in discussions since 2015, as stressed assets piled up at domestic banks in the aftermath of an economic downturn that made it difficult for many borrowers to repay debt.

In January, Ajay Piramal-led Piramal Group said it will launch a $1 billion stressed assets fund in association with Nirmal Gangwal, founder of Brescon Corporate Advisors Ltd, a corporate turnaround firm. The fund will be looking at investing in stressed firms and possibly take over management where needed.

The stressed asset market is looking attractive to domestic and foreign investors owing to a pile-up of bad loans in the Indian banking system, which is working on a March 2017 deadline to clean up its books.

Gross non-performing assets (NPAs) of 39 listed banks surged to Rs.4.38 trillion in the quarter ended 31 December 2015, from Rs.3.4 trillion at the end of the September quarter, according to data collated by corporate database provider Capitaline.

In a statement last week, ratings agency Crisil Ratings had said that it expects stressed assets (a sum of gross NPAs and other troubled assets) in the Indian banking system to rise to over Rs.7 trillion (or 11.3% of total loans) by March 2017, from about Rs.4 trillion (7.2% of total loans) as on March 2015.