34733 - Clearwater India Limited

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Summary of Investment Information

Project Number

34733

Company Name

ALTICO CAPITAL INDIA LIMITED

Date SPI Disclosed

Sep 29, 2014

Country

India

Region

South Asia

Projected Board Date

Oct 31, 2014

Environmental Category

FI-1 - Significant

Status

Completed

Last Updated Date

Apr 21, 2022

Department

Regional Industry - FIG Asia & Pac

Industry

Financial Markets

Previous Events

Approved : Jan 28, 2015
Signed : Jun 26, 2015
Invested : Apr 18, 2016

Sector

Other Non-Banking Financial Institution (NBFI)

Project Description

The proposed project envisages a senior debt investment in an onshore lending platform, CIL (“the Company”). CIL, an NBFC registered with the RBI, was set up in 2005 as an onshore primary lending platform. CIL is now being incrementally capitalized and plans to scale up significantly to lend to well-secured, operationally-viable but financially stressed Indian companies backed by hard assets and cash flows in the real estate and non-real estate sectors. CIL’s value proposition is based on stressed/special situations which include refinancing, last mile financing and working capital term-outs for maturity mismatches.

IFC’s proposed investment in CIL will provide capital support at a time when there is limited bank financing to support companies through stressed and distressed situations and lay the foundation for effective asset investment and a credit solution culture.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	72.49
Equity

Development Impact

1. Enable stressed Indian companies to (re)finance their existing debt with terms that allow them to recover/rehabilitate and grow. Currently, local bank financing is limited to this type of debtor. The inability to access (re)financing capital could drive these stressed companies, mostly SMEs, to become NPAs or go into liquidation.

2. Lay foundation for the development of effective stressed/distressed asset investment and credit solution culture which, in turn, contributes to the stabilization of the Indian financial system.

3. Contribute to the recovery of SMEs (CIL target clients) that have been unable to honor their debts due to financial difficulties. The specialized credit solutions of stressed asset investors, like CIL, significantly increase the likelihood that these borrowers can reach restructured loan agreements to avoid losing their assets and, ultimately, re-enter the formal banking system.

1. Catalyst: IFC''s investment would generate demonstration impact with local banks for them to offer debt financing to local stressed/distressed asset investors. Currently, there is practically no bank financing to support investors in the market.
2. Liquidity: IFC''s investment provides debt financing for stressed/distressed asset investments, especially as liquidity is currently scarce for these types of investments. Accordingly, IFC''s participation in this project will promote and expand private sector stressed/distressed asset investment in India.
3. Market Support: The opportunities for stressed/distressed assets investments in the US and Western Europe have significantly crowded out investment capital in emerging markets. This project demonstrates that IFC supports the evolution of such markets and contributes to the stability of the financial industry by working with private sector players in offering stressed/distressed asset investment capital for credit solutions.

E&S Category Rationale / Risks and Mitigation

The project is a debt investment in an NBFC engaged in secured debt financing /refinancing to otherwise viable stressed/distressed companies in India. The deal pipeline indicates medium to high E&S risks on account of construction/real estate projects in India. As per the business strategy and deal structures, some of the refinancing would be targeted to specific projects while others could be general corporate debt which further exposes the company to wider E&S risks and impacts.

Apart from real estate projects, other refinancing investments would largely be sector agnostic and hence will potentially present additional E&S risks and impacts. Overall, some of the investments could also be Category A projects. Considering that the financed projects might have been already started, additional challenges to correct any actions done prior to the acquisition may exist.

IFC's proceeds will be restricted by a defined end use (defined as Allowable Assets) and will not be utilized for any slum rehabilitation projects. Further, the asset pool financed by IFC will have upto 50% exposure to real estate projects/companies.

Overall, this will present potentially adverse environmental or social risks and impacts that could be diverse in nature, widespread in geography and some of which may have irreversible E&S impacts. Hence, the E&S risk of the proposed investment is high and the project is categorised as FI-1. The applicable Performance requirements will be i) the IFC- FI Exclusion List; ii) The host country E&S laws and regulations; and iii) the IFC Performance Standards.

The proposed project indicates high E&S risks on account of construction/real estate projects which is expected to constitute upto 50% of portfolio and remaining 50% would be sector agnostic investments. Key E&S risks and impacts in real estate projects would be on account of construction safety, labour management, compliance to E&S requirements specified by statutory authorities in respect to water and wastewater, land acquisition, biodiversity, fire safety etc.

Apart from real estate projects, other investments, being sector agnostic will potentially present additional E&S risks and impacts such as occupational health and safety, pollution management, and possibly land and biodiversity impacts depending on the nature and location of the project.

The company already has a functional E&S risk management system in place and the same will be upgraded to the requirements of this project.

Task Title & Description	Status	Comments	Completion Date
Nominate officers	Completed	CP confirmation notice and SEMS document	03/22/2016
Establish SEMS	Completed	Signed copy submitted. The actual disbursement happened in April 2016	03/22/2016
Staff Training	Completed	Webex training conducted by IFC for Altico key staff. Material uploaded in ESRD II	05/12/2016
Reputation risk screen	Completed	as part of SEMS	03/22/2016

Contacts

For Inquiries About the Project, Contact

Clearwater Capital Partners India Private Limited
Unit 6, level 2, Kalpataru Synergy
Opp Grand Hyatt
Santacruz East
Mumbai-400055
India
Mr. Karthik Athreya
mailto:kathreya@clearwatercp.com

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