JC Flowers, Eight Capital to launch fund to invest in distressed assets

US-based PE firm J.C.Flowers and Ravi Chachra-floated Eight Capital are planning to launch a $500 million fund to invest in mid-size corporate distressed assets in India. International Finance Corporation (IFC), the investment arm of the World Bank, will infuse over $100 million in the fund.

The fund will join the other global and domestic PE firms that are lining up to invest in the distressed assets in India, which they say is not only available at an attractive valuation, it also comes with good management and opportunity. 

According to reports, India's stressed assets market is estimated to be over $115 billion.

J.C. Flowers has partnered with Eight Capital to raise a $500 million fund, J.C. Flowers India Opportunities Fund (JCF Fund or the Fund). IFC will invest up to $100 million equity, limited to 20 per cent of the fund size. IFC is also proposing an equity investment of upto $4 million in local currency in JCF ARC, for a 15 per cent participation.

JCF Fund will be a newly established fund that will be set up in Singapore and managed by FP8 Services Pte Ltd (FP8 Services), which is jointly owned by the Sponsors. The fund will mobilise capital from local and international investors, including IFC, to invest in mid-size corporate distressed assets in India.

It may be noted, J.C. Flowers and Eight Capital also co-own an asset reconstruction company, J.C. Flowers Asset Reconstruction Private Ltd (JCF ARC or the company, and together with JFC Fund, JCF Platform), which is the licensed entity for acquisition of distressed assets from banks in India  

Established in 2015 in India and co-sponsored by J.C. Flowers, JCF ARC is currently owned by J.C. Flowers with a controlling 50% stake, Eight Capital with 35% shareholding and EMSO Asset Management Ltd which has a minority 15% stake.   

The fund will invest in mid-size corporate distressed assets in India. The JCF Fund will be set up as an umbrella variable capital company (VCC) in Singapore to aggregate contributions of international investors for investment in distressed companies in India.

Considering their existing investment in JCF ARC as shareholders and their new investments in JCF Fund and JCF ARC, the sponsors -- JC Flowers and Eight Capital -- will collectively invest $25 million in the JCF Platform. The sponsors will raise additional funds from other third-party investors for investment in JCF Fund. 

IFC said that the most significant, expected project-level outcome is the offloading of mid-size distressed assets by Indian financial institutions which will support their capital position by freeing up capital and increasing liquidity, and reducing large costs associated with the management of these assets. 

In addition, IFC expects that the project will help revitalise companies in distress, by working out their existing non-performing loans and providing new financing and support them in preserving jobs. Beyond the project-level outcomes, IFC anticipates that the project has the potential to promote greater market competitiveness via demonstration and replication channels.

IFC will also play a critical role in mobilising capital from the private sector to invest in the resolution of mid-size corporates in distress in India.

Founded in 1998 by J. Christopher Flowers, J.C. Flowers is an US-based private equity firm with deep global distressed assets investment experience in financial services. 

As of June 2020, J.C Flowers has invested more than $17 billion in 56 companies across 18 countries, including US, UK, Germany, Japan and India. The firm currently has about $5 billion in assets under management.

Eight Capital is an investment firm co-founded in 2005 by Ravi Chachra and invests in distressed and special situation opportunities in India. Since its inception, the firm and its investors have provided turnaround capital in excess of $500 million, as of June 2020, to companies with stressed balance sheets in India’s industrial and services sectors.

Eight Capital has co-invested with global investors such as Apollo, D.E Shaw, Spinnaker Capital, Atlas Capital, and J. Goldman & Company.

JCF Platform , the JCF Fund will be a newly established fund that will be set up in Singapore and managed by FP8 Services Pte Ltd (FP8 Services), which is jointly owned by the Sponsors.

The fund will mobilise capital from local and international investors, including IFC, to invest in mid-size corporate distressed assets in India.

Established in 2015 in India and co-sponsored by J.C. Flowers, JCF ARC is currently owned by J.C. Flowers with a controlling 50% stake, Eight Capital with 35% shareholding and EMSO Asset Management Ltd which has a minority 15% stake. 

According to reports, India's stressed assets market is estimated to be over $115 billion. The availability of good quality distressed assets already attracted some global funds including Apollo Global, Oaktree Capital, Nithia Capital. Investors are increasingly clinching distressed deals at attractive valuations, with good management in India amid the economic slowdown uncertainty caused by the pandemic.