India Ratings and Research (Ind-Ra) says asset reconstruction companies’ (ARCs) role in acquiring non-performing assets from banks is likely to be guided by the quantum of recoveries from distressed assets.
“The agency's experience of rating security receipts (SRs) backed by large corporate non-performing assets indicates that a pricing that overlooks the level of sustainable debt and potential recovery is unlikely to result in a positive yield for investors,” says Ind-Ra report.
The report says, in the closed trusts, ARCs have recovered only 30 per cent of the acquired principal in SME assets and nearly half of the acquired principal in large corporate assets.
“Despite the low recovery in SME assets, the investments generated positive yields for the investors as SRs were priced below 30 per cent of the acquired principal and average time of recovery was in the range of two to three years.”