A dozen private debt funds hit the road to raise $5 billion

Bankruptcy code is a key factor that has encouraged fund managers to bet big on Indian market

Of the total 15 India-focused private debt funds raising capital at present, four have adopted the distressed debt strategy to raise a combined $3.2 billion. Photo: Ramesh Pathania/Mint
Of the total 15 India-focused private debt funds raising capital at present, four have adopted the distressed debt strategy to raise a combined $3.2 billion. Photo: Ramesh Pathania/Mint

New Delhi: The number of India-focused private debt funds has grown exponentially in the recent past, and 12 such funds are on the road to raise as much as $5 billion in investor commitments in 2016 alone, the highest ever in any year, data from London-based market research firm Preqin shows.

This excludes Kotak Mahindra Group, which in March tied up with the Canada Pension Plan Investment Board (CPPIB) to launch a distressed asset fund and has already raised $525 million to make debt deals in India. From 2004 to 2014, there were only around 20 India-focused private debt funds, which raised just about $2.69 billion, according to the data.

Improved market sentiment and the passing of the new bankruptcy code are among the key factors that have encouraged foreign and domestic fund managers to bet big on the growing investment opportunity in the private credit space in India, said industry experts.

“It is obviously a huge opportunity in the market because at present debt is a far more important source of capital. Equity has a lot of connotation like it is expensive and there are valuation mismatch and private equity challenges, among others,” said Raja Lahiri, partner of transaction advisory services at Grant Thornton India LLP.

“Every company needs capital; so clearly debt availability outside the banking system has become an important source of financing opportunity for companies. That is where opportunity fundamentally lies,” Lahiri said.

Of the total 15 India-focused private debt funds raising capital at present, four have adopted the distressed debt strategy to raise a combined $3.2 billion, about 60% of the total private debt fund-raising in 2016, the data shows.

Caspian Impact Investments and Trifecta Venture Debt Fund I are the venture debt funds launched in 2014 and 2015, respectively. The rest are focused on special situations, mezzanine and direct lending, the data shows.

The largest among the funds coming up to raise capital and make investments include Piramal India Resurgent Fund and IFC-Apollo Distressed Debt Fund, raising $1 billion each.

While the Edelweiss Distressed Assets Fund is raising $750 million, others include Clearwater Capital Partners Fund V ($650 million) and Avenue Asia Special Situations V ($500 million).

Edelweiss Special Opportunities Fund II is raising $400 million, which was announced last year and has already marked its first close.

“In the recent past, the banks have also been actively looking to engage with borrowers, and this provides opportunities to funds—the effort would be to extract good operating assets from large diversified group balance sheets, and acquire non-performing assets/businesses and assess opportunities to turn them around,” said Sanjeev Krishnan, partner and leader (private equity and transaction services), PwC India.

“Also, executing these transactions remains hard, and only a handful of such transactions have consummated—some of the funds are attempting to invest through the ARC route, quite a few others are looking to do structured transactions which can provide them with a defined return with the possibility of an up side,” he added.

In March, New York-based private equity firm JC Flowers & Co. said it was floating a joint venture with Ashok Wadhwa-led investment bank Ambit Holdings Pvt. Ltd to acquire stressed assets in India.

Los Angeles-based Oaktree Capital Management, which has more than $100 billion in assets under management, is also looking to tap the Indian distressed assets market, Mint reported on 5 January.

BlackRock Inc., the world’s largest money manager, is a new entrant to the race and is pushing into private credit in the region.

“Two things attract a lot of foreign investors in India. One is expectation of the distressed market because a lot of banks are going for restructuring and progress in overhauling the bankruptcy procedures in the country,” said Amit Gupta, founding partner at New Quest Capital Partners.

“On the general private credit side, yields have compressed all over the world, but it continues to be high yield in the Indian economy. For two reasons—general interest rates are high and because their (banks) sector exposure are slowing down to specific sectors primarily like real estate, etc. So, India remains stable and its credit deals are much better than rest of the world, which is offering a good opportunity for private debt players who will be able to deploy good interest rates,” he added.

Notably, the Indian government passed the bankruptcy law in May, which aims to make it easier to dissolve the assets of a failing business and strengthens the rights of debt holders, which has long been an issue for potential investors.

“As the bankruptcy code gets implemented, further opportunities for these funds would emerge and a number of them globally take over businesses and work on turning them around,” Krishnan added.

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