Arcil targets comeback through mid-cap deals, fundraising

Country's oldest asset reconstruction company Arcil has blamed an "overheated market" for its slow pace of snapping up bad assets in recent years, but asserted that it will regain its past eminence by focusing on mid-cap deals and undertake a fundraising exercise this fiscal.
"I think some of our competitors have been much more aggressive. We have bought some small pools in FY16. We will continue to work on more acquisitions," Asset Reconstruction Company of India (Arcil) Managing Director and Chief Executive Vinayak Bahuguna told PTI.
The company, promoted by a clutch of banks, bought only about Rs 500 crore NPAs in 2015-16 as against Rs 2,500 crore in the previous fiscal, while new entrants have grown manifold in recent years.

For instance, Edelweiss ARC, which is the largest player in the country, had snapped up bad loans worth Rs 6,000 crore in fourth quarter of 2015-16 alone, taking its AUM to around Rs 25,000 crore in the year.
"The market was a little overheated in terms of prices, we didn't think we could make sufficient money on those assets to service our shareholders adequately," he said.
Other ARCs like the ones promoted by JM Financial and Kotak Mahindra Group have had a busier 2015-16, where they picked up large accounts.

Arcil will focus on transactions in the mid-cap space and will enter large value transactions only through partnerships with financial institutions, he said.

Bahuguna said Arcil will undertake a fund raising exercise sometime this fiscal and is open to money coming in from foreign investors after the government allowed 100 per cent foreign ownership in the sector.
According to experts, foreign investors are likely to be the only source of funds for Arcil as domestic institutions do not fund such riskier assets and its existing shareholders battle out their own issues with bad assets draining growth capital.
When asked about the time when Arcil was synonymous with
the industry, he said, "That day will re-emerge soon. I am sure that day will re-emerge soon in terms of our frontal position. We are a very well managed and professionally-run company."

"We don't run on the whims and fancies of just one person or one super boss. We have a collective team which works together," he said.
He questioned the business sense made by aggressive play by leveraged ARCs and added that Arcil stays away from a deal if it sees any risks.
"Lot of my competitors are heavily leveraged. In an industry with so much volatility, uncertainty and risks, do we add additional element of risks by over-leveraging?" he said, adding that any mishap can happen with a sick company and wondered why people are so "adventurous".
He, however, said even though a lot of new players are entering the system, there will be consolidation very soon.

"This is not everyone's bread and butter. There are many entrants today, but there will be a time when we will see some of these entrants fold up/merge/sell," he said.
Stating that the entry of foreign capital will "transform" the domestic ARC industry, Bahuguna said there is also a need to increase the conversion rate of bad assets buying.
"To date, the conversion rate remains low. 20-25 per cent of what is offered is sold. We are hoping that this will go up in 18 months to 30-40 per cent," he said.
When asked about the three-fold increase in the upfront payout in security receipt transactions to 15 per cent by the Reserve Bank in April 2014, he said this was a right decision as it will lead to actual resolution on the ground.

There are 16 ARCs which together manage around Rs 6,00,000 crore worth assets and this is likely to touch around Rs 1 trillion by the end of next fiscal, as he expects RBI diktat to clean up the banks' balance sheets by March next will force the lenders to sell more bad loans.