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Reviving Distressed Assets: The Business Model of Asset Reconstruction Companies



An Asset Reconstruction Company (ARC) is a specialized financial institution that acquires non-performing assets (NPAs) or distressed assets from banks or financial institutions at a discounted price. The primary business model of an ARC is to resolve these distressed assets and recover value for their investors.

The typical business model of an ARC involves four main stages:

  1. Acquisition: ARCs acquire distressed assets from banks or financial institutions at a discounted price. The assets can include non-performing loans, bad debts, and other distressed assets.

  2. Resolution: Once the assets are acquired, the ARC works to resolve them and maximize their value. This can include restructuring the debt, liquidating assets, or selling them to other investors.

  3. Recovery: The ultimate goal of an ARC is to recover as much value as possible from the distressed assets. This can be done by resolving the assets through various strategies or by selling them to other investors.

  4. Profit sharing: Once the assets are resolved, the ARC shares the profits with its investors. Typically, ARCs work on a profit-sharing basis, where they receive a percentage of the recovered value as their fee.

The business model of an ARC is built on the premise of providing an efficient and effective mechanism for resolving distressed assets. The model allows banks and financial institutions to offload their NPAs and free up their capital for more productive use, while also providing an opportunity for investors to acquire distressed assets at a discounted price and earn a return on their investment.

Some examples of Asset Reconstruction Companies (ARCs) in India that have successfully acquired and turned around distressed assets:

  1. Edelweiss ARC and the Resolution of Ruchi Soya Industries: In 2019, Edelweiss ARC acquired Ruchi Soya Industries, which was facing bankruptcy proceedings. After acquiring the company, Edelweiss ARC worked to restructure its debt, improve its operations, and turn it around. In 2020, Ruchi Soya Industries was acquired by Patanjali Ayurved, and Edelweiss ARC successfully resolved the distressed asset and recovered value for its investors.

  2. JM Financial ARC and the Resolution of Monnet Ispat: In 2017, JM Financial ARC acquired Monnet Ispat, a steel company that was facing bankruptcy proceedings. After acquiring the company, JM Financial ARC worked to restructure its debt and improve its operations. In 2018, Monnet Ispat was acquired by JSW Steel, and JM Financial ARC successfully resolved the distressed asset and recovered value for its investors.

  3. ARCIL and the Resolution of Lanco Infratech: In 2018, ARCIL acquired Lanco Infratech, an infrastructure company that was facing bankruptcy proceedings. After acquiring the company, ARCIL worked to restructure its debt, sell some of its assets, and improve its operations. In 2019, Lanco Infratech was acquired by Thriveni Earthmovers, and ARCIL successfully resolved the distressed asset and recovered value for its investors.


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