In its biggest investment in India so far, Canada’s Brookfield Asset Management plans to invest close to R7,000 crore or $1 billion in stressed assets in the country through a joint venture with State Bank of India.
The joint venture, the preliminary agreement of which was signed on Wednesday between the two parties, will see SBI contributing up to 5% of the total investments (around Rs 350 crore) targeted by the venture. It may also rope in other banks at a later stage.
The JV will independently evaluate and invest in various stressed assets, and will rely upon Brookfield’s operational expertise to manage recapitalised businesses, a statement from SBI said.
The development comes at a time when the non-performing assets in the Indian banking sector stands at Rs 5.9 lakh crore and SBI’s gross NPA, as of March 2016, stood at Rs 98,173 crore.
This investment from Brookfield, though its biggest so far, will be its second significant investment in India.
Life after debt
* Canada’s Brookfield and SBI form JV to invest in stressed assets
* Brookfield to invest Rs 7,000 crore in the venture and SBI approx Rs 350 cr
* JV will be like an AIF and not ARC
* Will provide equity or mezzanine funding
In August last year, it acquired six road and three power projects from Gammon Infrastructure Projects, the infrastructure arm of stressed Gammon India, for an enterprise value of over Rs 2,600 crore. Brookfield is a global alternative asset manager with over $240 billion of assets under management, with the experience of owning and operating assets in real estate, renewable energy, infrastructure and private equity.
Arundhati Bhattacharya, SBI chairman, said that this approach of tying up with global players will enable the banks and SBI, to find alternate solution for resolution of stressed assets. Bhattacharya said this approach will be more acceptable to both the lenders and the borrowers in cases where the promoters are not able to infuse funds and lenders are reluctant to take additional exposure.
Anuj Ranjan, head of Brookfield India, called this an opportunity to further expand its private equity platform in India.
The venture will look at assets across sectors and will provide funds in the form of equity or mezzanine funding, and will not be an asset restructuring company, rather an alternate investment fund, said an SBI official. He added that Brookfield was the ideal choice for the venture as they have large investment appetite and have experience in taking managerial control, which will help in alleviating stress in companies.
Industry watchers said that the partnership underlines the fact that global players are looking at India, and making long-term commitments as they see a potential here.
However, such investment vehicles also need to make returns. Karthik Srinivasan, senior vice-president, Icra, said, “It will be essential that there is a robust business plan and execution of the same. So far, what we have seen in the asset restructuring companies, for instance, is that they have not been able to scale up significantly in relation to the size of stressed assets in India,” he said.