The ADB’s role in encouraging and facilitating Asset Reconstruction Companies

[soumya sarita]

The ADB s role in encouraging and facilitating Asset Reconstruction Companies

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Introduction

ADB: Participating at early stage
Public Sector: Advising policy and framework dialogue, coordination and relationship management with Governments
Private Sector: Debt and Equity funding at early, riskier, stage
ADB and India
Public Sector: TA on the SAFREASI Act and Secured Transactions
Private Sector: Equity funding for ARCs, potentially Security Receipt investor

NPL market drivers and the ADB

INVESTMENT BANKS: Principal business needs risk sharing
Require leverage to lower equity cost, WACC
Seek diverse partners to better share risks
ASIAN NPL MARKETS: Early-stage Development
Early stage: Fewer players, higher costs
Later stage: More standardization like other markets
ADB: Valuable Early-stage Participant
Public Sector: Provide political value as multilateral
Private Sector: Offer Debt and Equity funding at riskier early stage

Overview

MAIN: Senior, limited-recourse debt
Partial Credit & Political Risk Guarantees
Equity Participation at Early Stage
General Comfort as Multilateral Partner

Portfolio Acquisition Loan

Senior, limited recourse
Maximum of 25% of total transaction cost (funding) or US$ 75
million (whichever is less)
Full credit, market asset and legal due diligence
Market-based spread
Underwriting Fee of 1% - 1.5%
US$, Euro or, depending on the country, local currency