JP Morgan is planning to set up an asset reconstruction company (ARC) in India and is seeking regulatory approval for the same. It has already identified and tied up partnerships for the proposed venture, but declined to name them. The company has already picked up around six distressed assets and is looking out for more.
JP Morgan has invested around $700-800 mn in distressed assets and principal investments in the Asian markets; it is not disclosed as to how much has been invested in the Indian market. The existing Indian assets might not be transferred to the new company immediately
JP Morgan is the second player in the recent months to announce the setting up of an ARC. Anil Ambani’s Reliance Capital has already approached the Reserve Bank of India for approval to promote an ARC, Reliance Asset Reconstruction Company. It has tied up with Corporation Bank, Indian Bank, General Insurance and some foreign players as equity partners. A number of foreign banks and funds have shown interest in the country’s bad loan market. US-based George Soros and US fund Blue Ridge have acquired 26% stake in Reliance Asset Reconstruction, while Barclays is close to picking up a nearly 10% stake in ICICI Bank-promoted ARCIL.
Read the article in Business Standard.
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Banks are falling over themselves to lend money, at ultra-low interest rates and with no strings attached. And the private equity firms do not even need to have a good credit rating. They secure the debt they borrow on the assets of the companies they buy. With pre-determined debt interest costs, any increase in profits from reducing staff numbers, for example, goes straight to the Orange County business investors.
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