Distressed asset funds take the secondary market route.
Even as the deal flow in private equity (PE) space is yet to gather steam, action is hotting up in the distressed asset fund market.
While a host of players are in the process of raising new funds, some of the distressed asset funds have recently done transactions through the secondary market in what could be a new trend. Distressed asset funds normally do not buy stakes through the market route, but the recent activity pointed to a possible pick-up in activity in the distressed asset space, where there are few transactions from banks, thanks to the special debt recast initiated after the global credit crisis.
Recently, Clearwater Capital Partners -- one of the most active distressed asset fund -- bought shares of Adhunik Metaliks worth Rs 12.68 crore at a price of Rs 100.02 each in a bulk deal transaction from Beaumaris Investments.
In November, it had also bought shares of companies such as Lyka Labs, Kamat Hotels and Unity Infraprojects through bulk deals. Clearwater already has investments in these companies and market players said that it might have topped up its stake to average out the cost of initial purchase. Some of the companies have been going through special situations as they were overleveraged or faced working capital and balance sheet stress, they added.
Though Clearwater Capital Partners has done over 40 transactions in India over the last five years, it refused to disclose details.
Spinnaker Global Strategic Fund, another global fund operating in the distressed asset space in India, sold an undisclosed stake in Sanghi Industries at Rs 33 a share on the Bombay Stock Exchange. Spinnaker's other investments in the country included Pennar Industries and Dunlop India, among others.
Similarly, ADM Capital (Asia Debt Management Hong Kong) recently purchased a Rs 360-crore loan that Deutsche Bank India had given to Sanghi Industries. ADM Capital manages distressed assets and special situations in Asia, and more recently in Europe. Its investments in the past include S Kumars Brandhouse Retail and Kitply Industries where capital infusion was done for restructuring the company.
Other funds that are active in the distressed asset space include JP Morgan's Special Situations Group and Goldman Sachs Special Situations Group. WL Ross has so far done only two deals in India -- OCM and SpiceJet. Some of the new entrants in the space are Ashmore, which recently raised a distressed asset fund focused at emerging markets and Mt Kellet Capital.
And, there are quite a few players which are eyeing the space. For instance, Halcyon is raising a $200-million (around Rs 925 crore) specialised fund for distressed assets. Tata Capital is planning one such fund as are BK Modi-promoted Spice Finance and Asset Reconstruction Company of India (Arcil), which has planned to raise a Rs 3,000-crore fund.
While Arcil Managing Director and Chief Executive Officer S Khasnobis was not so bullish about the deal flow in the non-performing loans market, others seem to be optimistic.
“Distressed asset deals tend to happen more post recessionary phases. We see a lot of such opportunities surfacing in days to come. Part of it has been put under table because of the forbearance of RBI. Even though markets have opened up making things easier for large companies, but mid- and small-cap companies are still struggling with balance sheet issues, and there is a huge opportunity there. There is a sense of urgency among companies also, as they do not want to miss out on opportunity created due to the stabilised market condition," said Halcyon Resources & Management Co-Founder and Managing Director Abhay Soi.
"The distressed assets market in India is relatively young, but showing signs of growing into a more mature market. With robust local demand and GDP growth, many entrepreneurs are encouraged to take on leverage in anticipation of rapid growth, which typically takes time to materialise with a reasonable degree of sustainability. Such business, though fundamentally sound and with good management, runs into industry downturns due to a variety of reasons, which could cause varying degrees of balance-sheet stress. The other opportunity could be offshore instruments available at below par in underlying businesses that are positioned well in their respective sectors," added Clearwater Capital Partners Director Karthik Athreya.
