34869 - DARP Encore ARC

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Summary of Investment Information

Project Number

34869

Company Name

ENCORE ASSET RECONSTRUCTION COMPANY

Date SPI Disclosed

Jan 8, 2015

Country

India

Region

South Asia

Projected Board Date

Feb 9, 2015

Environmental Category

FI-2 - Limited

Status

Completed

Last Updated Date

Mar 31, 2023

Department

Global Industry, Financial Markets

Industry

Financial Markets

Previous Events

Approved : Sep 11, 2015
Signed : Oct 29, 2015
Invested : Nov 9, 2015

Sector

Distressed Assets Servicer

Project Description

The proposed project (subject to regulatory approvals) consists of an investment in Encore Asset Reconstruction Company Private Limited (“Encore ARC”) in India, to support the acquisition and resolution of distressed assets (“DAs”), largely retail and MSME NPAs in India.

Sponsor / Cost / Location

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan
Equity	5.42

Development Impact

- Economic Development: The successful implementation of the project will aid the development of a market for DAs, which in turn will serve as a stabilization factor for the financial system. This should enable institutions to focus on productive use of capital which can result in higher liquidity and increased capitalization levels at the lending institutions level which all helps the real economic development.

- Business Environment: DA transactions help improve the stability of the banking system, the lifeline of an economy. As financial intermediaries increase the sale of their DAs the transparency of the balance sheets of these financial intermediaries improve as these assets are priced according to the market conditions, which improves the business environment.

- Financial Infrastructure: IFC''s involvement in this project will allow the foundation for a focused DA market in retail and MSME sectors, which will improve liquidity in the overall economy. Banks selling their DAs to Encore ARC will be able to devote their resources for originating new credit, while Encore ARC''s activities will help debtors get back into the credit system.

- Liquidity: IFC will provide capital for retail/MSME NPA investments when liquidity is currently scarce for these types of opportunities. Accordingly, IFC''s participation will promote private sector investment in this sector and help in the development of a DA market.

- Market Support: The vast number of opportunities for DA investments in the United States and Western Europe is significantly crowding out other regions. IFC''s participation in the proposed Project will send a strong signal that transparent market transactions are possible in developing countries, and that IFC supports the development of a robust DA market to help the cleaning-up of the financial sector.

- Global Best Practices: The project will help encourage best practices for DA resolution in the market.

- Mobilization: IFC expects to play a critical role to mobilize capital from private sector into the acquisition and resolution of non-performing and under-performing assets. Currently, there are limited DA investors in India, as the market is still in its nascent development stage.

- Help Encore ARC become a local player in an important and under-represented retail/MSME NPA market space. ECPG has a strong presence in retail space in US and UK. The proposed deal will help Encore ARC become an active player in the underserved retail NPA market in India.

E&S Category Rationale / Risks and Mitigation

The project is an investment in a greenfield asset reconstruction company (Encore ARC) which will operate in India. Encore ARC will focus on unsecured/secured retail and MSME NPAs of public and private sector banks in India as well as foreign banks operating in India.

Overall, the project present potentially limited adverse environmental or social risks or impacts. Hence, the project is categorized as FI-2. The applicable performance requirements will be i) the IFC- FI Exclusion List; and ii) The relevant host country E&S laws and regulations.

Main E&S risk and impacts of the project emanates from the potentially unresolved E&S issues in the acquired NPAs/NPLs. The nature of the business allows for minimal due-diligence on E&S risks prior to acquisition. This presents a potential reputational risk from the acquired portfolio/pool of assets. Hence, the identification and resolution of any E&S risks and impacts arising from the acquired portfolio will be an ongoing process. Two-third of portfolio is expected to be comprising MSME assets and remaining will be retail secured/unsecured assets.

The key E&S risks and impacts will be related to workplace and labour practices, occupational health and safety, compliance to applicable laws related to licensing, permitting etc in case of MSME and stressed customers. Being a greenfield ARC, Encore ARC is in the process of setting up systems and operational procedures. The company will be required to develop procedures for managing E&S and reputational risks in its portfolio. The company will also need to develop its human resource policies consistent with IFC Performance Standard-2.

Task Title & Description	Status	Comments	Completion Date
Nominate officers	Completed	Notification submitted to IFC after board resolution. Tarun Kumar is the Env officer	02/08/2017
Establish SEMS	Completed	The ESMS was put for Board approved in November 2016, and came into effect in March 2017. Copy submitted to IFC in November 2016, prior to board submission. Same version is Board approved.	03/28/2017
Staff Training	Rescheduled
Reputation risk screen	Completed	as part of SEMS	07/26/2018
Other1 HR policy	Completed	emailed policies	03/30/2018

Contacts

For Inquiries About the Project, Contact

Encore Capital Group Inc.,
3111 Camino Del Rio NorthSuite 1300San Diego, CA 92108Mr. Paul GrinbergExecutive Vice President and Chief Financial Officer
Telephone: +1 858-309-6904
http://www.encorecapital.com/

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