Apollo Global looks for distressed asset opportunities in India

The firm has been flexible with its investment plans while it waits for the right opportunities in genuinely distressed assets

Please see Apollo Global Management's clarification at the end.

Apollo Global Management, the US-based alternative investments manager with $172.5 billion assets across credit, private equity and real estate, is currently focused on distressed assets, with stress on banks' balance sheet rising across continents, amid tightening regulations.

The New York-based fund, which has expertise in distressed assets, is raising $3.5 billion to buy bad debt from European banks and asset managers, according to Bloomberg. This will be the third such fund by the firm for European markets. But, in India, it has not really been able to find a suitable opportunity in distressed asset despite raising $825 million in 2014 in a partnership with ICICI Venture.

"We have provided risk capital to a few situations but not yet to any genuinely distressed situation in India," says Mintoo Bhandari, senior partner and managing director at Aion India Advisors, partnership firm. It has so far been flexible with its investment plans in India while it waits for the right opportunities in distressed assets.

Early this year, the AION Capital backed Pramod Bhasin and Anil Chawla (former top executives at GE India) to buy its commercial finance business in the country. It also exited one of its early investments in the consumer electrical business of Gautam Thapar-led Crompton Greaves this year. With other small investments in firms such as in Jyoti Structures and Varun Beverages, Aion has committed nearly half its $825-million corpus and plans to invest an additional one-fourth of the fund in the next 18 months. For the upcoming investments, it is evaluating opportunities in large-scale industrial projects. But, it has not yet zeroed in on an opportunity in distressed assets that it specialises in.

Apollo Global's other investment in India outside Aion Capital were also not able to tap distressed assets opportunity in the country. In 2009 it invested Rs 465 crore in Dish TV. It fully exited the investment last year with about three times return at Rs 1144 crore. It also invested Rs 2,250 crore in three units of Welspun Group in 2011 which it continues to be invested in.

"In India, the alignment of many stakeholders is a pre-requisite. The syndicated loan structure that is predominant in India requires a large number of lenders, along with the promoters to play a constructive role for a successful restructuring. So, all of them need to be aligned for any recapitalisation to be successful, and this is not always easy to accomplish," said Bhandari.

The Reserve Bank of India (RBI) has tightened the norms for lenders to declare their non-performing-assets (NPAs). As of now, NPAs for 42 lenders stand at Rs 5.5-lakh crore ($82 billion). It could rise further as six banks including State Bank of India are scheduled to declare their fourth quarter results.

RBI had earlier sought suggestion from private equity firms for their role in providing risk capital to recapitalise the stressed assets held by the banking sector. The regulator also introduced a strategic debt restructuring mechanism last year that enables lenders to convert a part of their debt into equity. But, there has not been much progress on the ground in terms of sell-offs.

"The stars are aligning. There is a general acceptance that banks should retrieve back capital as they need to protect their balance sheets and momentum for this is gaining pace," says Bhandari, who also doubles his role with being the managing director at Apollo Global Management India.

This month, Parliament passed the Insolvency and Bankruptcy Code 2016, which will soon become a law after the approval from the President. This is a vital reform that will ensure time-bound settlement of insolvency, enable faster turnaround of businesses, and create a data base of serial defaulters.

CLARIFICATION 

Apollo Global Management has clarified that it is not only a distressed asset investor, but is a full-fledged global private equity firm investing through several strategies including traditional buy-outs, distressed buy-outs and debt investments, and corporate partner buy-outs. It also added that it had made several investments in India over the years that have been hugely profitable. The firm is optimistic of the prospects for the private equity business and is focused on the potential for recapitalising distressed assets in India.