Vulture funds, including Oaktree, circle distressed assets in India3 min read . Updated: 05 Jan 2016, 12:24 PM IST
The development comes even as banks and corporate houses try to pare debt with offers of equity and asset sales
Global funds specializing in stressed assets have started to look at India for investment opportunities as banks and corporate houses try to pare debt with offers of equity and asset sales.
One such firm that is looking to re-enter the Indian market is Los Angeles-based Oaktree Capital Management Lp, which has more than $100 billion in assets under management, said two people familiar with the development.
“With lenders becoming more active and taking control through strategic debt restructuring (SDR) and with the bankruptcy law coming in place, we are seeing global special situation funds like Oaktree Capital actively looking at Indian assets," said a lawyer familiar with the development. He requested anonymity as these discussions are private.
Limited partners (LPs) see opportunities in this space and 2016 would be an active year for stressed asset investments, he said.
Oaktree Capital declined to comment for the story.
Oaktree manages assets on behalf of institutional investors that include global pension plans, US pension plans, sovereign wealth funds and primary state retirement plans in the US.
In 2012, Oaktree launched its Emerging Markets Opportunity fund, which has a corpus of $793 million.
In June 2013, Oaktree invested ₹ 120 crore in pharmaceutical packaging firm Cogent Glass Ltd to acquire a 60% stake in the company. According to a note released on 27 February by India Ratings and Research Pvt. Ltd, Oaktree now holds a 74% stake in the firm.
Barring that one deal, Oaktree has not publicly announced any other in the Indian subcontinent.
The fund, like many others, is looking at India because of a surge in stressed assets on sale by banks and corporate houses. Firms with a high level of debt have been trying to sell operational assets, while banks are now looking to offload equity in some companies where they have converted debt into equity.
There is ready capital for some of these assets, provided they are priced appropriately and the fear of litigation is kept at bay.
“Capital is readily available for investing in stressed assets in India, but what makes people wary is the litigations, the known unknowns which can whitewash an entire investment. With the amount of stressed assets available in the country, fund managers are trying to identify situations even before reaching the SDR stage," said a risk adviser who is actively working with banks to identify deal situations. The adviser declined to be identified.
Other funds such as Hong Kong- headquartered SSG Capital Management have also become more active in India.
Earlier this month, SSG Capital bought Amtek Auto Ltd’s bonds, which were in default, from JP Morgan Asset Management. Last year, the vulture fund also acquired a 49% stake in securitization and asset reconstruction firm Assets Care and Reconstruction Enterprise Ltd for an undisclosed amount.
Apollo Global Management, a global fund active in the stressed asset space, is already present in India through a joint venture with ICICI Venture, called AION Capital Partners.
“Traditionally special situations funds have not invested much in India, but with banks taking control over these assets and being reasonable in their return expectations, investors are keen to look at these situations," said Dinkar Venkatasubramanian, partner, transaction advisory services, at consultancy EY.
These funds typically seek dollar returns of over 20%, said Venkatasubramanian, adding that they may need to temper their return expectations from the Indian markets. A 15% or so return may be a more realistic expectation to have, he said.
While conversations between potential buyers and sellers have already begun, deals may not close in a hurry.
“To begin with, most funds are seeking to invest in infrastructure projects rather than at the company level. Thus, these transactions would be complex ones where subsidiaries would be carved out as separate entities where deals can be struck," said an investment banker familiar with the development, who asked not to be named.