Assets Under Management AUM

apollo: Apollo Global rethinks the ARC JV with ICICI Bank, “Looking to Exit”

US private equity giant Apollo Global Management is rethinking its asset reconstruction company (ARC) joint venture after it failed to take off due to intense competition in the distressed debt space and as it explores new ways to invest in space, such as through an alternative investment fund (AIF).

The company has decided to now invest in troubled assets through its AIF and will seek a buyer for its more than 90% stake in ARC, five people familiar with Apollo’s plans said.

“A fund doesn’t need to have an ARC structure to acquire distressed assets these days,” said a person with direct knowledge of the matter. “Doing it through an AIF gives more flexibility to meet regulatory compliances. ARC already sold the only asset it owned last week and will now enter the distressed asset space through an AIF. ”

Apollo owns more than 90% of ARC’s capital and has already been approached by a few big funds to buy out its stake, a second person said.

“They would rather find some value for their bet and cut their losses,” said another person familiar with the developments. “ICICI, which owns less than 10% of the capital, will decide its future course of action depending on whether or not Apollo finds a buyer. This company has in fact never taken off and has not reached agreements notable, so if it can’t find a buyer, it may fold.”

The New York-based fund, which manages $513 billion globally, has invested more than $1 billion in India and will continue to invest in its private equity, real estate and credit businesses as well as habit, these people said.

Apollo declined to comment. ICICI did not respond to an email seeking comment.

Little information is available on Arcion Revitalization Pvt Ltd, the Apollo-backed ARC, on the company’s website, with no updates on the company’s assets under management.

“They made a handful of deals,” said a third person familiar with the development. “One of the few is the Srinagar Banihal Expressway Ltd, in which it had an aggregate debt of 26%. Otherwise it had nothing of note. It is no surprise that they came out as they could not match to market price expectations and lost many trades in the process.”

Apollo’s Arcion and others had incurred debt worth Rs 200 crore from

and in Srinagar Banihal Highway, offering up to 60% haircut last year. That debt was sold to SC Lowy-backed Pridhvi ARC in a deal struck just last week, the first person quoted above said.

ICICI had announced its partnership with Apollo in August 2016 to acquire bad debts from lenders and stakes in struggling companies. It received a registration certificate by RBI in August 2018.

It is unclear how much capital Apollo and ICICI have invested in the company. Reserve Bank of India (RBI) rules state that the minimum capital for an ARC is Rs 100 crore. But this total amount does not have to be invested. Businesses just need to show that they have Rs 100 crore in cash to start an ARC business.

“The ARC business has changed. It is very competitive. After the IBC, a system has developed to seek out offers and resolve distressed assets. Then there are large global funds that are also looking to take a piece of that cake, then it’s not easy for everyone to succeed,” said a third person familiar with Apollo’s plan.

The ratings estimated that the total AUM of ARCs declined to ₹1.07 lakh crore in March 2021 after peaking at ₹1.13 lakh crore in the fiscal year ending March 2019.

The formation of National Asset Reconstruction Co Ltd (NARCL) earlier this year will mean that large assets above ₹500 crore will be transferred to the wrong government-backed bank, leaving the ARCs to fend for the crumbs or buy them from the bank. aggregator paying a higher price. All of these factors could cause big funds to rethink their distressed asset strategy for India.

Arcion is the second company with ICICI that Apollo leaves. A few years ago, Apollo decided not to inject more money into AION, a special-situation investment vehicle between Apollo and ICICI Venture, the private equity arm of ICICI Bank.