Edelweiss ARC had bought 55% of the Rs 350 crore debt while Phoenix ARC purchased 45%
While banks failed, asset reconstruction companies have managed to turn around a soured asset.
Edelweiss ARC and Phoenix ARC have revived the Vega Mall project in Bengaluru with additional fund infusion.
A Rs 350 crore loan by banks for the project had turned non-performing.
Edelweiss ARC had bought 55% of the Rs 350 crore debt while Phoenix ARC purchased 45%.
On June 30, Indiabulls Housing Finance (IBHF) entered into a lease rental discount (LRD) with the ARCs and paid them Rs 500 crore for rights over the mall space.
The promoters of the mall also had a hotel property, but its construction was stopped for a lack of funding, which will be now be completed. Taj Hotels too had an interest in the property.
The ARCs gave additional priority loan of Rs 70 crore to complete the project. This helped get an investor, signifying the importance of successful timely intervention that put a distressed asset back on the track.
Siby Antony, executive chairman at Edelweiss ARC, said, "This a successful case where the 15:85 scheme worked and where both banks and ARCs will benefit.
The additional finance gave life to the project helping revive the asset in record time. ARCs will work for the successful recovery in all the distressed assets so that all stand to gain."
Under 15:85 scheme, an ARC pays 15% of the loan upfront to banks while the remaining money is recovered through security receipts that the ARCs issue, which come into the books of the bank when the recovery takes place. In this case, the recovered money will flow into the bank's books in the second quarter of this fiscal, giving a leg-up to the ARC model of acquisition.
Banks, led by State Bank of India, erstwhile State Bank of Mysore (merged with SBI now) and Bank of India, had disbursed loans of Rs 350 crore to the Vega Mall promoters. After promoters of the project were not able to meet their debt obligations, SBI had moved to recover the outstanding under Sarfaesi Act (Securitisation and Reconstruction on of Financial Assets and Enforcement of Security Interest Act, 2002 and Security Interest (Enforcement) Rules, 2002), and had called for e-auction of the project, which was being developed by the promoters.
After the loan was sold to them, the ARCs took over the management of the mall and hotel complex located in the Benhartghatta road in Bengaluru.
The ARCs got into an agreement with the lenders where they made a 15% upfront payment and the 85% in the form of security receipts. With the LRD agreement that has got in Rs 500 crore, banks will be able to recover its entire loan without any haircut.
FULL RECOVERY
- Edelweiss ARC had bought 55% of the Rs 350 crore debt while Phoenix ARC purchased 45%
- After the LRD agreement that has got in Rs 500 crore, banks will be able to recover its entire loan without any haircut
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