Adani Group mulls ARC businesses to purchase stressed assets in infra, real estate: Report

AHMEDABAD : Adani Group has applied for a licence from the Reserve Bank of India to open an asset reconstruction company (ARC) that will acquire distressed assets in infrastructure and real estate, two people familiar with the matter said.

“The plan has been in the making for at least eight months, and the application was filed earlier this year. The group is waiting for the nod from RBI,” one of the two people cited above said. The ARC will buy bad loans in distressed entities where the group has a strategic interest, the second person added.

The Adani Group owns Adani Capital, a non-banking financial company (NBFC), which is allowed to purchase bad loans under RBI norms. However, using an NBFC for this purpose would lead to the accumulation of NPAs in its book; so typically, corporates set up special purpose vehicles for buying NPAs. Generally, most bad assets on sale are bought by ARCs.

In the past two years, the Adani group has profited significantly by acquiring distressed assets in infrastructure, specifically ports. Its flagship company—Adani Ports and Special Economic Zones Ltd (SEZ)—in February completed the acquisition of Dighi Port Ltd under the Insolvency and Bankruptcy Code for ₹705 crore. In 2021, it bought the Krishnapatnam and Gangawaram ports. With these additions, Adani Ports now controls 30% of India’s port traffic.

A similar story has played out in airports.

The Adani group acquired a controlling stake in Mumbai International Airport Ltd (MIAL) after its debt burden became unsustainable, and the company attracted a Central Bureau of Investigation (CBI) investigation.

In late June 2020, CBI filed a first information report alleging fraud by MIAL’s then promoters, the GVK group, including chairman G.V.K. Reddy and his son G.V. Sanjay Reddy, and unnamed employees of the Airports Authority of India.

In real estate, the Adani group was one of the bidders for Dewan Housing Finance Corp. Ltd (DHFL) under IBC, though ultimately, the company was acquired by Piramal Enterprises Ltd for ₹34,250 crore.

The group’s real estate business housed under Adani Realty is involved in the development of residential and commercial real estate projects spanning 69 m sq. ft in Mumbai, Ahmedabad, Gurgaon, Kochi and Mundra.

In a report released on Tuesday, an RBI committee proposed to allow ARCs to act as resolution applicants in the IBC process, a plus for the Adani group’s ARC if it is approved.

The report was critical of the performance of existing ARCs in India.

“Banks and other investors could recover only about 14.29% of the amount owed by borrowers in respect of stressed assets sold to ARCs during the FY2004 – FY2013 period,” the report said. It also said that 80% of the recovery made by ARCs has come through measures that did not necessarily lead to the revival of businesses.

The RBI committee has recommended that the scope of Section 5 of the SARFAESI Act will be expanded to permit ARCs to acquire financial assets from all regulated entities, including alternative investment funds, foreign portfolio investors, asset management companies investing on behalf of mutual funds, and all NBFCs, including housing finance companies