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L&T Finance has garnered approximately 10 expressions of interest (EoI) for a portfolio of distressed developer loan accounts, amounting to a combined outstanding balance of Rs 3,022 crore. Stakeholders, including Phoenix ARC, Assets Care & Reconstruction Enterprise (ACRE), Arcil, Omkara Assets Reconstruction, and Edelweiss Asset Reconstruction Co. (sponsored by Kotak Mahindra), have submitted EOIs. The deadline for firm offers is set for June 18.
The loan portfolio comprises loans granted to 10 real estate developers, including prominent entities such as Supertech, Nirmal Lifestyle, and Reliance Infrastructure's special purpose vehicle, SU Toll Road, owned by Anil Ambani. Notably, Nirmal Lifestyle Developers commands the largest loan available for acquisition, amounting to Rs 790 crore, with Nirmal Lifestyle Malls following at Rs 251 crore and Supertech at Rs 515 crore.
To facilitate the transaction, L&T Finance has adopted a 15:85 structured approach, inviting EoIs from renowned asset-rebuilding companies. Under this arrangement, L&T Finance's maximum share of securities receipts will amount to 85 percent. Interested bidders were required to express their interest by June 5. While representatives from L&T Finance, ARCIL, and Omkara have refrained from commenting, spokespersons from Edelweiss ARC and ACRE have confirmed the submission of their EOIs.
According to an executive director from one of the participating ARCs, approximately ten ARCs have expressed interest; however, it is expected that not all of them will present firm offers for the assets. The executive director noted that L&T Finance has diligently sought to sell the Supertech loan for some time, but potential bidders have displayed a lack of interest.
This strategic move by L&T Finance is an integral part of its ongoing initiative to streamline its wholesale portfolio, which encompasses infrastructure finance and real estate finance. The objective is to refocus and prioritize retail lending while gradually phasing out wholesale lending. As of the end of the fiscal year 2023, retail loans constituted a significant 75 percent of L&T Finance's overall loan book, as stated in the firm's April 28 announcement.
Distressed developer loans are loans that are provided to real estate developers who are facing financial difficulties and are unable to repay their debts. These loans are considered high-risk as there is a high likelihood that the developer may default on the loan. Distressed real estate developments occur when the developer faces prolonged levels of distress and necessary development-related actions are not handled correctly. These loans are a cause for concern for lenders, as they can result in significant losses if the developer defaults on the loan.
However, distressed debt investing can present opportunities for investors who are willing to take on the risk. It involves investing in the existing debt of a financially distressed company, government, or public entity, providing investors with an opportunity to purchase debt at a discount and potentially earn high returns if the company is able to turn around its financial situation.
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