Singapore-based Deutsche Asia Pacific Holdings (DAPH), a subsidiary of Deutsche Bank AG, is all set to pick up a 26 per cent stake in Pegasus Assets Reconstruction, a company co-promoted by stock broker Rakesh Jhunjhunwala.
DAPH, which was recently granted permission by the Centre for the proposal, will buy 23,480,811 equity shares of Pegasus for an undisclosed amount, reportedly higher than the price determined by the Reserve Bank of India (RBI) guidelines.
With this sale of shares to the foreign entity, the equity holding of Jhunjhunwala and his family members, Rekha and Rajesh, will come down from 37.5 per cent to 27.74 per cent. Another stakeholding family in the company, the Bhimjyani family, will hold 36.28 per cent stake.
The asset reconstruction company (ARC), which was set up in 2004, now has an authorised capital of Rs 75 crore and a subscribed paid-up capital of Rs 66.83 crore.
With over Rs 1,50,000-crore worth non-performing assets in the Indian economy, many banks and companies have been attracted towards the asset reconstruction business. Among banks, Deutsche Bank, Kotak Mahindra and Standard Chartered have been active players in this market. The equity stake in Pegasus will strengthen Deutsche’s presence in this segment.
Pegasus has picked up stressed assets in various areas and with asset sizes varying from Rs 10 crore to Rs 100 crore. These include a steel unit in Karnataka, an auto components unit near Mumbai and a paper unit in Aurangabad.
The company generally enters into a joint venture with banks for management of the asset. It then ropes in a new promoter who infuses working capital into the asset. It is then sold out and the profit is shared between the company and the bank.
Under the existing guidelines, FDI investment in asset reconstruction is allowed up to 49 per cent. However, in case any individual FDI exceeds 10 per cent, it is considered a sponsor of the ARC and has to meet the provisions of section 3(3) (f) of the Securitisation and Reconstruction of Financial Assets and Reconstruction of Financial Assets and Enforcement of Security Interest Act of 2002.
The DAPH investment will come under this ambit. The regulation states that a sponsor (in this case, DAPH) cannot be a holding company of the ARC or cannot hold any controlling interest in such a company.
In the FIPB meeting held late last month, the Department of Industrial Policy and Promotion (DIPP) cleared the proposal subject to compliance of the 2002 Act. The proposal was also cleared by the Department of Revenue.
