Kotak ties up with ADIA for USD 600 mn distressed assets fund

Mumbai: Kotak Mahindra Bank's alternate asset arm on Thursday announced a USD 600 million distressed assets investment fund, with a bulk of the quantum committed by the Abu Dhabi Investment Authority (ADIA). ADIA has committed USD 500 million for the special situations fund, while Kotak will invest the remaining. It will invest in cases where accounts have been classified as non performing assets (NPAs) and also where companies are facing financial stress but are not NPAs, Kotak Investment Advisors' (KIA) managing director and chief executive Srini Sriniwasan told PTI.

The fund will be operational for eight years and will be in the investment mode for next four years, he said. "It is a very flexible approach that we are looking at. We will focus on debt and structured debt with an equity upside," he said. The fund is targeting returns of over 20 percent, he said, adding that the Kotak Mahindra group will be investing the remaining USD 500 million.

The announcement comes after media reports in August 2017 of Kotak ending a joint venture with Canadian pension fund manager CPPIB, where the two had launched a USD 525 million fund to invest in the stressed assets space. Quoting sources, the reports had said that the joint venture ended as the fund failed to find investments but added that the company was in talks with other investors including ADIA and Qatar Investment Authority for a fund. Sriniwasan confirmed the same on Thursday, saying there was no Insolvency and Bankruptcy Code (IBC) framework and a strong RBI framework on NPA recognition which resulted in a paucity of deals which resulted in the end of the JV.

He added that the February 12 circular which ends asset restructuring and mandates a compulsory reference to the IBC has been of comfort, and also helps the fund. The Government has been proactive with the changes required to the law and has made the necessary amendments as well, he said, replying to concerns of the IBC process being mired in legal processes and few resolutions. The Indian banking system is saddled with over Rs 10 lakh crore in NPAs. According to the RBI, the gross NPAs for the system stood at 10.8 per cent as of September 2018 and it expects a further improvement in the number as resolutions rise.