India Inc to tap private credit to finance new projects, says PwC

Tax uncertainty is a big concern for PEs

Private credit is fast emerging as a major source of finance for projects in India as several entrepreneurs are looking for short-term debt to bridge the funding gap due to difference in pricing for equity dilution, top officials at PwC India said.

They said while new private equity (PE) investments during the past two years have declined, several public market exits by PEs were observed during that period.

Several companies are likely to approach capital markets in the near future to provide liquidity to PE fund investors.

“We have noticed that demand for private credit has picked up. Several large credit funds have started investing billions of dollars in Indian companies — in both stressed as well as the performing credit space,” Bhavin Shah, partner & leader — private equity and deals — PwC India said.

 

Private credit is offered by PE firms at marginally higher interest rates than syndicated loans. The private credit firms also help entrepreneurs run a company by helping them with their global experience.

Tax uncertainty is a big concern for the PEs investing in India. “Even though there is an effort being made by the Centre to bring more clarity on the Indian tax system, we are still seeing several PE funds receive income-tax notices on settled issues,” Shah said. 

“This will be India’s decade and PE investors from across the world are planning to invest in the country,” said Eric Janson, global head – private equity, PwC.

According to PwC India, 2021 was the year with maximum investments with massive amounts of private money flowing into the Indian ecosystem. This allowed record exits for early investors.

Last year also saw record exits through public market sales — a sharp uptick from 35 per cent in 2022 to 51 per cent in 2023 in terms of deal volumes.

The big-ticket exits of more than $20 million in calendar year (CY) 2022 and CY23 were largely driven by public market and strategic sales.

Global PE funds, on an average, have an investment holding period of 6-7 years. They were able to generate returns of 3.5x–4.5x on their original investment in CY22 and CY23.


M&As pick up pace in Q1

The merger and acquisition (M&As) transactions have picked up pace in the March quarter of 2024 with  455 deals amounting to $25.6 billion deal value announced. This is a 24 per cent rise in deal volume as compared to Q4CY23, according to PwC India report. This signals a shift from the declining trend observed in 2023, as per PwC India’s report Deals at a glance. Dinesh Arora, partner and leader — deals, PwC India, said: “Amid a landscape ripe with opportunities, the Indian economy emerges as a beacon of resilience. The first quarter of 2024 showcases the best figures in the last six quarters owing to the momentum of the market and large-ticket deals, hinting at a bold appetite for strategic expansion and market dominance."

The average ticket size for M&A remained unchanged, while the same for PE investments saw a decline of 39 per cent, indicating that although the number of deals increased, the majority of these deals had smaller ticket sizes. Most deals with

disclosed values are in the lower- and mid-market segment, with around 80 percent of the total dealsbelow $50 million.  The largest deal of the quarter comes from the media and entertainment sector, where RelianceIndustries signed a deal with Walt Disney Corporation to form a joint venture, combining the businesses of Viacom18 and Star India.