Adani considers ARC biz to buy stressed assets in infra and real estate

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MUMBAI : The Adani Group has applied for a license from the Reserve Bank of India to open an Asset Reconstruction Company (ARC) that will acquire struggling infrastructure and real estate assets, two people familiar with the matter said.

“The plan has been in the works for at least eight months and the request was filed earlier this year. The group is awaiting the green light from RBI, ”said one of the two people mentioned above. The CRA will buy bad loans from distressed entities where the group has a strategic interest, added the second person.

The Adani Group owns Adani Capital, a non-bank finance company (NBFC), which is licensed to buy bad debt according to RBI standards. However, using an NBFC for this purpose would lead to the accumulation of NPA in his book; therefore generally, companies set up special-purpose vehicles to purchase postcode. Usually, most bad assets for sale are bought by CRAs.

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The group’s real estate activity is hosted by Adani Realty.

An email sent to a spokesperson for the Adani group went unanswered.

Over the past two years, the Adani group has benefited greatly from the acquisition of struggling infrastructure assets, particularly ports. Its flagship company — Adani Ports and Special Economic Zones Ltd (SEZ) — completed in February the acquisition of Dighi Port Ltd under the Insolvency and Bankruptcy Code for ??705 crores. In 2021, it bought the ports of Krishnapatnam and Gangawaram. With these additions, Adani Ports now controls 30% of India’s port traffic.

A similar story played out at airports.

The Adani Group acquired a controlling stake in Mumbai International Airport (MIAL) after its debt burden became unsustainable, and the company has come under investigation by the Central Bureau of Investigation (CBI).

At the end of June 2020, CBI filed a first information report alleging fraud on the part of the promoters of MIAL at the time, the GVK Group, including Chairman GVK Reddy and his son GV Sanjay Reddy, and anonymous employees of Indian Airport Authority.

In real estate, the Adani Group was one of the bidders of Dewan Housing Finance Corp. Ltd (DHFL) under IBC, but eventually the company was acquired by Piramal Enterprises Ltd for ??34,250 crores.

The group’s real estate activity, hosted by Adani Realty, is involved in the development of residential and commercial real estate projects covering 69 m² in Mumbai, Ahmedabad, Gurgaon, Kochi and Mundra.

In a report released Tuesday, an RBI committee proposed allowing CRAs to act as resolution seekers in the IBC process, a plus for the Adani group’s CRA if approved.

The report criticized the performance of existing CRAs in India.

“Banks and other investors were only able to recover about 14.29% of the amount owed by borrowers for stressed assets sold to CRAs during the period FY2004 – FY2013,” the report said. It also indicates that 80% of the recovery carried out by the ARCs went through measures that did not necessarily lead to the revival of companies.

The RBI committee recommended that the scope of Article 5 of the SARFAESI law be broadened to allow CRAs to acquire financial assets from all regulated entities, including alternative investment funds, investors portfolio companies, asset management companies investing on behalf of mutual funds, and all NBFCs, including housing finance companies.

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