IFC to invest $100 mn in JC Flowers India fund to help resolve NPAs

International Finance Corporation (IFC) is a World Bank Group entity

The World Bank Group entity International Finance Corporation (IFC) is partnering with JC Flowers to help domestic lenders resolve their distressed assets and free up capital for new lending apart from allowing mid-sized firms to preserve jobs and avoid insolvency amid the raging pandemic.

Under the project, which is an expansion of IFC's distressed asset recovery programme in India, the lender will invest up to USD 100 million in the JC Flowers India opportunities fund on meeting certain conditions, with an initial commitment of USD 40 million, IFC said on Wednesday.

This partnership will create the first dedicated platform in India for mid-sized distressed assets, which account for USD 27 billion more than a third of corporate stressed assets.

However, despite increasing demand for corporate resolution, mid-sized segment is underserved due to a lack of large transactions and challenges investors face in identifying attractive opportunities.

JC Flowers India opportunities fund is a partnership with Eight Capital Management, an Indian distressed assets investment firm.

The Reserve Bank of India's (RBI) estimates that a second wave of the pandemic could potentially cause non-performing loans to reach USD 200 billion, which nearly 15 per cent of gross loans by September 2021.

This partnership aims to support an inclusive economic recovery and revitalisation of the economy, promote credit growth, and ensure the continuity of hardest-hit businesses and livelihoods.

Across the globe, the pandemic has dealt a blow to companies' ability to repay their debts, and increased already soaring pre-crisis corporate debt levels, said Alfonso Garcia Mora, vice-president (Asia and Pacific) of IFC.

"By helping create a functioning market for distressed assets, this initiative will let viable Indian companies return more quickly to productivity, limit bankruptcy, and allow banks to return to their core lending business in support of medium and small enterprises.

"Together with our partners, we remain committed to supporting India's efforts to restore economic growth and stabilise the financial system," he added.

In addition to its investment, IFC will also support JC Flowers and Eight Capital to adopt environmental and social standards in line with the IFC performance standards.

The distressed asset recovery programme focuses on acquiring and resolving distressed assets, the refinancing and roll-over risks of viable entities, and restructuring of small enterprises.

Since its launch in 2007, the distressed asset recovery programme has committed USD 7.7 billion globally, including USD 5 billion mobilised from outside. It has also enabled banks to offload over USD 33 billion of non-performing assets (NPAs) and help over 18 million debtors resolve their obligations.