UV Asset Reconstruction Company submits bid to buy IFIN's bad loans

Sale to help IL&FS clean its financial services arm book

UV Asset Reconstruction Company (ARC) has submitted a bid to buy 62 non-performing accounts worth Rs 4,300 crore from IL&FS subsidiary, IL&FS Financial Services (IFIN).
 
According to the Reserve Bank of India (RBI) regulations, IFIN has initiated the Swiss challenge method to give an opportunity to the higher bidder of the earlier round, ARCIL, to match the fresh bid by UV ARC. The winner from the Swiss challenge is likely to be announced soon. The bids for IFIN’s bad loans sale had closed on Tuesday. The potential transaction would be conducted on a full upfront cash consideration basis.
 

"As the bid was under Swiss challenge, there is a RBI approved process which is underway before H1 can be declared," a IL&FS spokesperson said.

The sale will help IL&FS clean up the books of its financial services arm, which had a large portfolio of bad loans. Banks have already classified loans to IFIN as fraud after its parent firm IL&FS collapsed under a massive debt of Rs 99,000 crore.
 
The new board of IL&FS said in July this year that it will be able to recover Rs 58,000 crore, or 95 per cent of its recovery target, by the end of the current fiscal year.
 
For both UV ARC and ARCIL, the acquisition of IFIN’s bad loan portfolio will help them increase their market share. IFIN had granted loans to various group companies of IL&FS apart from lending to outside parties.
 
UV ARC had won the mandate to bag two telecom companies, Reliance Communications and Aircel, after both companies were sent to the National Company Law Tribunal (NCLT) for debt resolution. But the RBI later clarified that the ARCs cannot participate in the Insolvency and Bankruptcy Code process.
 
Asset reconstruction companies are heavily regulated by the RBI and are registered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. According to the business model, ARCs buy bad debt from banks at a deep discount and then help turn around the company, which, in turn, repays its debt.
 
The ARCs usually get a return of about 22 per cent on their investment and if they make a good bet, there are chances that the returns can go as high as 30 per cent. Several ARCs in India have tied up with foreign stressed funds which help them strategise on turning around companies.