India, China, Germany to draw big investment in NPA market

Global investors controlling huge pools of investment capital, are eyeing the India's non-performing asset (NPA) market with plans to invest up to $1 billion in India, China and Germany in fresh capital through 2004.

These markets are attracting foreign investment from the world's top 40 major investors including the likes of CDC Capital Partners, Standard Chartered Bank, Merrill Lynch, Colony Capital, Cerebrus, Morgan Stanley, GE Capital, Shinsei Bank, GW Fund, Newbridge and ICICI Ventures.

Over the last few years, investment banks, opportunity funds and other international investors have invested as much as $20 billion in equity to acquire distressed assets around the world.

The recent NPA legislation, framework for formation of asset reconstruction companies (ARCs), large market potential and the strong 'India Shining' story are attracting investors to India, says Ernst & Young India CEO, Rajiv Memani.

The E&Y's latest report on global non-performing loans states that 2004 could well turn out to be a watershed year for NPA resolutions around the world.

The consulting firm anticipates resolutions of NPAs worth $3-5 billion in terms of gross loan value in the near future, to be led by asset reconstruction companies (ARCs) in India.

This will enable real financial restructuring in distressed corporates, lay down the platform for better utilisation of these assets and also promote merger and acquisition (M&A) activity in the country, states the report.

Asia's banks have succeeded in moving over $1 trillion in NPAs off their balance sheets since the Asian financial crisis in the late 1990s, says E&Y's report.

The consultancy firm, however, cautions that another $1 trillion in non performing loans still remain on the books of Asian banks and the government-created asset management companies.