Global investors flock to private debt space, expect huge demand for credit

Global investors such as the Canada Pension Plan Investment Board (CPPIB), Ontario Teachers’ Pension Plan, Baring Private Equity (PE) Asia, and Värde Partners are flocking to Indian private debt because they expect huge demand for credit in the country after the onslaught of the Covid-19 pandemic and limited lending by Indian banks and non-banking financial companies (NBFCs).

These have committed over $1 billion in Indian private credit, revealed industry estimates.

Private debt means debt given to privately held companies or buying those loans in the secondary market.

The CPPIB, Canada’s largest pension fund manager, last month committed $250 million (Rs 1,800 crore) to Baring PE Asia’s India Credit Fund III. The fund strategy is focused on rupee-denominated secured lending to performing mid-market Indian companies.

The CPPIB in 2019 invested $225 million in the India Resurgence Fund (IndiaRF) platform, set up by Piramal Enterprises and Bain Capital Credit, through its arm CPPIB Credit Investments.

IndiaRF sought to invest in distressed assets by purchasing existing debt and equity securities through bankruptcy courts or directly from lenders, or newly issued securities.

The CPPIB’s earlier venture with Piramal Enterprises to give debt to property developers did not take off.

The same year (2019), Bain Capital entered the credit business in the country and set up an Indian team. Raymond Chan, head of APAC Credit, CPP Investments, said: “Globally, around 13 per cent of our overall fund is in credit and we have significant direct credit-underwriting capabilities. There is a shortage of debt capital in India and we see great opportunities in this space.”

Baring PE Asia launched the Rs 3,000-crore India-focused debt fund in December last year. Kanchan Jain, managing director and head of India credit at Baring PE Asia, said the opportunity for performing private debt had increased following the pandemic, given the continued disruption in credit availability from banks and NBFCs.

“This period has highlighted the need for a diversified capital source for fast-growing companies that can benefit from such periods,” Jain said.

In September last year, Ontario Teachers’ Pension Plan Board partnered Edelweiss Alternative Asset Advisors for a private debt platform that aimed to invest $350 million in the country.

Huge opportunity

Haseeb Malik, partner and head of Asia corporate and traded credit at Värde Partners, said: “Coming into the pandemic, India was trying to resolve more than $200 billion of non-performing loans in its banking system, alongside extreme volatility in the country’s $300-billion NBFC sector, leaving borrowers with few options to plug the gap. The additional impact of Covid-19 has led to an even greater demand for alternative credit, with the opportunity to lend and support good quality business.”

Vishal Srivatsava, president, corporate finance at Anarock Capital, said foreign lenders were getting more comfortable with the legal framework after the Insolvency and Bankruptcy Code came.

“There is a huge opportunity to lend as credit flows by NBFCs have dried up after defaults by Infrastructure Leasing & Financial Services. Existing players do not have the wherewithal to lend now,” he said.

Many global investors such as KKR, Brookfield Asset Management, and others have well established businesses in the country.

KKR has two NBFCs, which deal in corporate debt and real estate debt.

KKR’s real estate NBFC, KKR India Asset Finance, saw assets rising marginally to Rs 4,214 crore in 2019-20.

KKR’s other NBFC KKR India Financial Services’ assets were at Rs 6,449 crore in December 2019, against Rs 6,487 crore in March 2019.

Handsome returns

The segment has also attracted even home-grown investors such as True North, which has set up a credit business and roped in Kapil Singhal, former head of KKR India Financial Services.

“We will seek to deliver superior risk-adjusted returns with capital preservation and current income through the cycles by offering flexible capital solutions to well-governed and under-deserved companies,” Singhal said recently in a LinkedIn post.