Vol 16 (2019) - Issue 6

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The Viability of Adopting Alternative Investment Fund (AIF) Structure vis-à-vis other Investment Structures for Financing Big-Ticket Stressed Assets in India

Synopsis

In July 2018, the committee on faster resolution of stressed assets led by Sunil Mehta, in its report titled 'Project Sashakt', recommended the floating of an independent asset management company (AMC) funded by sector-specific alternative investment funds (AIFs) to help banks resolve their big-ticket stressed assets. This article examines the suitability of using the AIF structure for financing stressed assets. Section 2 of this article discusses the recommendations proposed by the Sunil Mehta committee and explicates the key considerations involved in using AIF as a debt investment vehicle. Section 3 of this article evaluates the viability of other modes of investment vehicles for financing stressed assets that domestic as well as foreign investors can avail of: (a) asset reconstruction company (ARC); (b) non-banking financial company (NBFC); (c) foreign portfolio investor (FPI); and (d) external commercial borrowings (ECB). In conclusion, this article, while acknowledging the benefits of the AIF-led resolution mechanism vis-à-vis other structures, highlights the need to harmonise the proposed mechanism with the existing laws and regulations in place.