Edelweiss Asset Reconstruction to float Rs 150-cr fund

Will focus on acquiring operating units with a turnaround potential.

Edelweiss Asset Reconstruction Company Limited (EARC) is floating a second fund with a corpus of about Rs 150 crore to pick up non-performing assets from banks and financial institutions. EARC acquired nine assets aggregating over Rs 1,250 crore through bilateral and auction deals at an acquisition cost of Rs 145 crore.

Siby Antony, chief executive and managing director of EARC, said the focus was on acquiring operating units with a turnaround potential in which restructuring operations could lead to positive cash flows.

These accounts are medium and small-sized units across various sectors including textile (denim), poultry and dairy. According to rating agency ICRA, its Internal Rate of Return on the current asset portfolio is estimated at 30 per cent.

EARC, set up in 2009, began procuring assets from March 2010. The first full year of operations was in 2010-11. Edelweiss Alternate Asset Advisors Limited, a subsidiary of Edelweiss Capital, holds 49 per cent stake in EARC. The first reconstruction fund has mopped up about Rs 75 crore and EARC would raise over Rs 25 crore more for this fund. Antony said EARC is going in for a fresh capital infusion to support growth in business. Its present capital base is about Rs 50 crore.

The company is currently raising an additional Rs 25 crore capital through a rights issue. A fresh equity infusion is required to meet the regulatory capital adequacy requirements of 15 per cent to scale up business volume. Another round of equity infusion may be in order as it plans to significantly scale up its operations over the next year, ICRA said.

The expected entry of players from the fields including banking, asset reconstruction and special situations funds is likely to intensify competition and test EARCs quest for profitability while remaining an important player in the Indian distressed assets industry.