Housing Development Finance Corporation is joining hands with US-based WL Ross & Co to set up an international fund worth over $100 million for investment in Indian corporate restructuring and turnarounds.
WL Ross & HDFC will set up an asset management company, probably in Mauritius, for managing the fund. HDFC will have a 19.9 per cent stake in the AMC, while WL Ross & Co will own the rest. The investment in the AMC would be small as such business did not require capital support, HDFC executives said.
The fund will target stressed and even bankrupt companies, and look for corporate restructuring and privatisation.
WL Ross & Co will keep a team of experts in India to scout for investment opportunities and HDFC will provide advisory support to it.
It is not clear how the fund will operate in India as no foreign fund is allowed to buy distressed banking assets even though foreign banks and non-banking companies can buy them. However, foreign funds can buy out distressed companies directly by going through the Foreign Investment Promotion Board.
WL Ross Managing Director Ranjeet Nabha, responsible for India affairs, said India had the largest non-performing assets market in Asia after Japan and China.
Increased loan loss provisioning by Indian banks cushions them from the impact of NPAs, but these assets need to be acquired and restructured to allow distressed companies to grow. The total NPA of Indian banks outside the already restructured assets can be around Rs 65,000 crore (Rs 650 billion).
HDFC Chairman Deepak Parekh said, "The WL Ross team has extensive experience in the global turnaround arena and we look forward to working with them in this endeavour."
WL Ross has been established by Wilbur L Ross, Jr, who has experience in corporate restructuring across the globe. WL Ross' notable principal transactions include rolling up the remains of five bankrupt US steel companies into the International Steel Group, which was sold earlier this year to Mittal Steel for about $4.5 billion. He is also a member of the board of directors of Mittal Steel.
Prior to 1997, Ross acted as financial adviser to a series of corporate restructuring worth more than $200 billion. After becoming a principal investor in 1997, Ross has managed assets worth over $4.5 billion across a variety of global distressed investing strategies.
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