India:
SEBI Introduces Special Situation Funds: Opens Doors For Acquisition Of Stressed Loans Without ARC Intermediation
27 April 2022
Resolut Partners
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One of the biggest challenges faced by offshore funds wanting to
invest in bad loans in India was necessary intermediation by a
third party Asset Reconstruction Company (ARC). In most cases, the
structure involved the ARC sponsoring and managing an asset
reconstruction trust (ART), which acquired such bad loans from the
funds received by the issue of security receipts. Setting up an in-
house ARC wasn't feasible in most cases due to high regulatory
requirements such as capital adequacy norms - most likely driven by
the regulatory intent that ARCs should rather act as asset managers
for ARTs than manage assets on their own books. ARCs and SR holders
were also not always aligned on the governance and enforcement
mechanics of the loans acquired. Offshore investors therefore
pressed for a regime that allowed them to invest without the need
for intermediation by an ARC.
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