Apollo Global has a rethink on ARC JV with ICICI Bank, ‘Looking to Exit’

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

“A fund does not need to have an ARC structure to acquire distressed assets nowadays,” said a person directly aware of the matter. “Doing it through an AIF gives more flexibility in meeting regulatory compliances. The ARC has already sold the only asset it owned just last week and will now engage in the distressed asset space through an AIF.”

Apollo owns more than 90% stake in the ARC and has already been approached by a couple of large funds to buy out its stake, a second person said.

“They would prefer to find some value for their stake and cut their losses,” said another person aware of the developments. “ICICI, which has less than 10% stake, will decide on their future course of action based on whether Apollo finds a buyer or not. This company actually never took off and has no noteworthy deals, so if they don’t find a buyer, it may just fold up.”

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

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

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

“They have done a handful of deals,” said a third person aware of the development. “One of the rare ones is the Srinagar Banihal Expressway Ltd, in which it had aggregated debt of 26%. Otherwise it had nothing of note. It is not a surprise that they are exiting because they could not match the price expectations of the market and lost out on many deals in the process.”

Apollo’s Arcion along with others had picked up debt worth Rs 200 crore from

and in Srinagar Banihal Highway, offering a haircut of up to 60% last year. This debt was sold to SC Lowy-backed Pridhvi ARC in a deal completed as recently as last week, the first person cited above said.

ICICI had announced its partnership with Apollo in August 2016 to acquire bad debt from lenders and equity stake in distressed companies. It was awarded a certificate of registration by RBI in August 2018.

It is unclear how much capital Apollo and ICICI have put into the venture. Reserve Bank of India (RBI) rules say the minimum capital for an ARC is Rs 100 crore. But this total amount does not have to be invested. Companies have to just show that they have Rs 100 crore of liquidity to start an ARC business.

“The business of ARC has changed. It is very competitive. Post IBC, there has been a system that has developed to seek bids and resolution of distressed assets. Then there are large global funds looking to also take a bite of this pie, so it’s not easy for everyone to succeed,” said a third person aware of Apollo’s plan.

Ratings estimated that the total AUM for ARCs had decreased to ₹1.07 lakh crore in March 2021 after peaking at ₹1.13 lakh crore in the fiscal ended 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 government-backed bad bank, leaving ARCs to scramble for the crumbs or buy it from the aggregator paying a higher price. All these factors could lead to large funds rethinking their distressed asset strategy for India.

Arcion is the second venture with ICICI that Apollo is exiting. A couple of years ago, Apollo decided not to pump in more money into AION, a special situation investment vehicle between Apollo and ICICI Venture, the private equity arm of ICICI Bank.