Canada's Brookfield plans $1 billion investment in Indian distressed assets

MUMBAI (Reuters) - Canada’s Brookfield Asset Management Inc plans to invest about $1 billion in Indian distressed assets through a joint venture with State Bank of India (SBI). India’s largest lender, where banks are battling a record $120 billion of sour debt.

People walk to Brookfield Place off Bay Street on the day of the annual general meeting for Brookfield Asset Management shareholders in Toronto, May 7, 2014. REUTERS/Mark Blinch/Files

Brookfield and SBI have signed a preliminary agreement to set up a joint venture for the investments, the firms said on Wednesday. SBI aims to contribute up to 5 percent of the total investments targeted by the venture, which may also rope in other banks at a later stage, they said.

Indian banks, with 11.5 percent of their loans soured, are under pressure from the regulator and the government to clean up their books as higher bad loans choke fresh lending in an economy whose main source of funding is bank credit.

The government earlier this year eased rules for bad-loan buyers, and was also in talks with banks to help set up funds to deal with distressed assets.

The scale of the opportunity and the rule easing are drawing other foreign companies such as J.C. Flowers & Co and Canada Pension Plan which have announced plans to invest in the Indian distressed assets space.

Brookfield, which manages about $240 billion of assets globally, has previously invested in the Indian real estate and infrastructure sector. The 70 billion rupees ($1.04 billion) that it has committed to invest through the venture with SBI will be its biggest through a single venture in India.

The companies did not give a timeline for the investments. They also did not say by when the venture will be set up or detail the ownership structure.

The collaboration, though, will help banks in general and SBI in particular to find alternative solution for resolution of stressed assets, Arundhati Bhattacharya, chairman of SBI, said in the statement. SBI accounts for about a fifth of India’s banking assets.

The JV has no plan to set up a so-called Asset Reconstruction Company required to directly buy bad loans from banks, but will instead make equity or mezzanine financing to distressed cases, a senior SBI executive said separately. Details of the investment plan were yet to be worked out, the executive said.

Siddharth Purohit, a banking analyst at Mumbai’s Angel Broking, said while more investors were expected in the distressed assets space, the size of India’s non-performing assets (NPAs) was just too big.

“The requirement of funds will be much higher than what is being initially committed,” he said.

($1 = 67.2100 Indian rupees)

Reporting by Devidutta Tripathy; Editing by Muralikumar Anantharaman