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In an aggressive pricing strategy, JM Financial Asset Reconstruction Company (ARC) has made an upfront payment of Rs 865 crore to lenders, about 20 per cent of the total sum, for loans to Leela hotels.
Last week, a consortium of lenders to the Leela hotels, led by State Bank of India, sold 98 per cent (Rs 4,100 crore of the overall dues of Rs 4,200 crore) of their exposure to JM Financial ARC.
While Rs 865 crore was paid in cash, security receipts of Rs 3,245 crore had been given to banks, JM Financial ARC told Business Standard.
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Bankers and analysts said most deals to purchase non-performing assets involved five-10 per cent upfront payment in cash. For the remaining amount, lenders are given securities receipts. Banks holding these receipts are paid as and when the ARC recovers dues.
Asked about the aggressive pricing, JM Financial ARC Executive Chairman V P Shetty said before deciding the pricing, the company had analysed the account and the underlying securities.
The company is collecting documents related to Leela hotels from lenders; it will have representation on the board of the hospitality company. The current loan agreements have been assigned to the ARC by lenders. If required, fresh agreements may be signed, based on the restructuring plan.
On the funding arrangement for the deal, Shetty said “JM Financial ARC has funded the acquisition entirely on its own balance sheet. To finance the deal, no alliance has been formed with any distress fund or company.” Besides using internal resources, the company may also use credit lines from banks.
JM Financial has identified asset reconstruction as a core business segment for growth. Its ARC is expected to play a key role in the group’s plan to launch a distressed asset fund. Shetty said the plan was in a preliminary stage. Rating agency CRISIL said JM Financial ARC had security receipts outstanding, both owned and managed, of Rs 3,650 crore, as of March-end this year, compared with Rs 1,080 crore a year earlier.
As of March-end, the company had healthy capitalisation, with a net worth of Rs 330 crore and an overall capital adequacy ratio of 47 per cent.
