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Business News/ Companies / News/  True North raises 1,000 crore towards maiden credit fund

True North raises ₹1,000 crore towards maiden credit fund

True North expects to close the credit fund with around ₹1,300-1,400 crore of capital by December.

Vishal Nevatia, founder and managing partner, True NorthPremium
Vishal Nevatia, founder and managing partner, True North

Homegrown private equity firm True North on Monday said it has raised 1,000 crore towards its maiden credit fund, marking its entry into private credit.

True North, with assets under management of over $3 billion, raised capital from Indian ultra-high net worth individuals (UHNIs) and family offices.

It will look to deploy the capital over the next five years and is targeting a 15-18% internal rate of return (IRR), Vishal Nevatia, founder and managing partner, True North and Kapil Singhal, managing partner at True North’s private credit unit said. The firm expects to close the credit fund with around 1,300-1,400 crore of capital by December.

True North has so far raised six private equity funds and has looked at a second asset class to complement its private equity business over the last five years. It has closed its sixth private equity fund at $600 million in 2020. 

It has so far invested in more than 70 businesses through its private equity unit, over the last 24 years across consumer, financial services, healthcare, and technology sectors and made around 50 exits, generating a cumulative return of around 23-24% IRR in local currency.

Venture capital, real estate, distressed assets and growth stage PE were the areas considered before deciding that credit would be the best natural extension for the firm.

“We felt that credit would be a very attractive and a large opportunity in India over the next 10-20 years. It has gone through an early period of stress and eventually come through -- we think private credit is where private equity was 15 years ago," Nevatia said.

Singhal joined True North in late 2021 to set up the company's credit team, which now has eight investment professionals and analysts.

Through its credit fund, True North will look to bridge the supply-demand gaps for middle-market companies and offer capital solutions for shorter tenures. The fund is likely to tap businesses that generate revenue of around 300-400 crore and have a turnover of up to 1,500 crore.

The performing credit strategy is built on structural inflexibility of the banks to do certain kind of transactions i.e. tenor elongation, structured repayment schedules, domestic acquisition financing etc. Sometimes, it is also the banks’ inability to act with speed; other times it is the practical limitations that banks have i.e. financing asset-light businesses," Singhal said. “For such transactions, we can offer agile & tailored solutions. Because it is expensive, it doesn't make sense for the borrowers to keep this for a long time," he added.

The fund will back only profitable cash-flow generating businesses, Nevatia added.

These are likely to be performing businesses that are unable to go to a bank for specific reasons, he said.

"They may need support for two to three years before they can go back to a proper bank for refinancing. We can help them for two to three years - by then, they will also fit the bank’s evaluation criteria," Nevatia said.

Some of the deals could involve domestic acquisition financing which is not permitted to be done by the banks. It could be financing a company that has gone through restructuring in the past, has turned around, and is profitable today but it still needs a home in a performing credit fund before it goes back to the banking system," Singhal said.

Called the ‘Performing Credit Regular Income Fund', it has already backed eight companies. The fund has fully exited one and partially exited another investment. 

“The performing credit strategy that we're targeting right now will focus on 17-18% gross return and deliver a 13%-14% net return, which is pre-tax, post fees, post carry, post expenses," Singhal said in the joint interview.

Private credit is in high demand in India's mid-market due to limited supply from banks and non-banking financial companies. Certain sectors are off-limits for lending beyond a threshold limit, which further exacerbates the need for private credit, according to executives.

Apart from True North, firms such as ASK Group, Edelweiss, BPEA Credit among others are targeting the private credit opportunity in the country.

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Ranjani Raghavan
Ranjani heads the startup and new economy team at Mint. She covers the investment and the deals ecosystem, which takes her into the secretive world of high finance — mostly private equity and venture capital firms and the people running them. She also writes about the Indian corporate world which includes old fashioned business executives and their emerging challengers from the tech ecosystem.
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Published: 27 Nov 2023, 06:30 PM IST
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