Centrum Alternative Investment Managers Ltd, the alternative investment arm of Centrum Group, has achieved the first close of its maiden structured credit fund at ₹155 crore, a top executive said.
Centrum Credit Opportunities Fund (CCOF) is targeting to raise a total of ₹500 crore, along with a greenshoe option to raise another ₹250 crore.
A greenshoe option gives the fund an option to raise more than it had originally planned, if it receives higher subscription interest. With its credit fund, Centrum is looking to tap the opportunity created by the liquidity crisis in non-bank lending, which has led to a slowdown in loan disbursements.
“In the near term, for at least the next two to three quarters, we clearly see that there is a credit crunch from the traditional lending sources, which are basically the banks and NBFCs (non-banking financial companies). That creates a good opportunity for alternative credit funds like us, to come and participate in the market," said Rakshat Kapoor, fund manager and chief investment officer of CCOF.
“Given the recent volatility in credit markets, and with banks and NBFCs continuing to reduce risk exposures, we see significant value and opportunity in the performing credits space," he added.
The fund will target to generate an internal rate of return in the range of 16-18%.
“We are looking to achieve our fundraise target by April-June quarter next year," said Kapoor.
The fund has received most of its investments from large family offices and a network of ultra HNIs (high-net-worth individuals). While Centrum Group has committed to invest 5% of the total fund size, CCOF will raise the rest from others.
Centrum’s credit fund will provide debt to mid-sized firms in high growth, brick and mortar, consumption-led and core sectors of the economy.
“There are certain sectors we will stay away from, such as real estate, infrastructure, auto, telecom and within the pharma space, generics where things are looking a bit uncertain," said Kapoor.
The fund has made its first investment of ₹30 crore in a speciality chemicals manufacturer, which plans to use the capital to meet its working capital needs, capital expenditure and for realignment of existing debt. The firm raised a total of ₹120 crore debt, of which the remaining ₹90 crore came in from other co-investors.
“We normally pick up large transactions of ₹100-150 crore, in which part of the money, mostly up to ₹50 crore for each deal, comes from the fund and the remaining we are able to mobilise from our network of co-investors," he added.
Prior to the formation of the fund, Centrum Alternative Investment Managers invested in two other deals that will now get passed on to the fund. The first one in December 2018, according to Kapoor, was a ₹155 crore private debt investment in Jana Holdings Ltd, and the second was a ₹150 crore credit transaction with water infrastructure firm Vishvaraj Environment Pvt. Ltd in March. Recently, many financial services groups have entered the structured credit space, with the interest being on both performing and non-performing (distressed) credit.
In March, Mint reported that financial services group Edelweiss was looking to raise up to a $1 billion corpus for Edelweiss Special Opportunities Fund III, focused on the performing credit space. In August, Kotak Investment Advisors Ltd reached the final close of its Kotak Special Situations Fund, with total commitments of $1 billion.