India is a key market in Asia for private equity (PE) funds looking to invest in distressed companies, according to New York-based private equity firm Clearwater Capital Partners, Llc.
The six-year old firm focuses on small- and medium-sized distressed companies in Asia (excluding Japan) using both debt and equity.
Clearwater has a total corpus of $1.7 billion (about Rs6,681 crore, pension fund California Public Employees’ Retirement System is a key investor), and this includes its latest $900 million fund that closed in June.
In India, Clearwater said it has $450 million invested or committed across 26 companies, mostly in the last two-and-a-half-years. This includes investments in automotive-parts company Jamna Auto Industries Ltd, wire products manufacturer Diamond Cables Ltd, hospitality company Kamath Hotels (India) Ltd, and offshore services company Dolphin Offshore Enterprises (India) Ltd.
The investments reflects the fund’s sector focus which includes manufacturing, hospitality, auto parts, power, and oil and gas.
“India and Korea are our two largest allocations of capital today and expected allocations of capital going forward—(there is) absolutely a ton of stuff going on here,” said Robert Petty, the New York-based managing partner of Clearwater.
After making its first investment in India in CESC Ltd (part of RPG Enterprises) in 2003, Clearwater quietly started building a physical presence here in 2004. During that year, Clearwater received its non-banking finance licence from the Reserve Bank of India and began its full build out in early 2005. Now the Mumbai office is one of its largest in the world with a staff of 16 (out of 80 globally across 6 offices) and is led by Karthik Athreya and Jayshree Krishna.
Given its focus on this market, Clearwater may have a significant headstart on the many PE funds, domestic and foreign, that are looking to enter this market. Specifically, Clearwater looks across Korea, India, China, greater South-East Asia (Indonesia, Thailand, Malaysia and the Philippines), and pan-Asian companies.
“We think about the macro-country elements as well as specific companies,” Petty said. “It has to be an environment that works. In Korea and India, the law works.”
While the number of distressed situations is higher in China, the regulatory environment prevents it from being a key market for the company, although it opened up a 10-person office in Beijing this year. According to Petty, the company expects “the opportunity time frame” to be longer in China. “Absolute dollars of non-performing loans in China is vastly larger,” he said, but added that the company has a “harder time” finding companies to invest in the country.