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Global funds are swooping in to invest in India’s stressed companies

Researchers calculate that funds have already pumped $1.5 billion in distressed assets in India this year, 55% more than through all of 2019.

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Mumbai: India’s macroeconomic troubles are attracting a new wave of global investors betting they can eke out profits from the rising number of capital-starved businesses struggling to stay afloat.

Some global heavyweights like Apollo Global Management Inc. and Oaktree Capital Group have either struck recent India deals or scaled up their teams in the country in a push to invest in distressed assets. New York-based Cerberus hired a former Apollo and Citigroup veteran to establish and lead an India office in 2019, and this year vied with Ares Management Corp.-backed SSG Capital Management for control of a failed shadow lender.

The latest example of a foreign investor stepping in came Tuesday, when India’s central bank asked Singapore-based DBS Group Holdings Ltd.’s India unit to take over capital-starved Lakshmi Vilas Bank Ltd.

Researcher Venture Intelligence calculates that funds have already pumped $1.5 billion in distressed assets in India this year, 55% more than through all of 2019. That data only captures deals that have closed and doesn’t includes others that have been recently announced such as Oaktree’s 22 billion rupee ($294 million) loan to lender Indiabulls Housing Finance Ltd. in July.

India in recent months has struggled to control its coronavirus epidemic, reporting the largest number of infections after the U.S. and has suffered the worst economic contraction among major economies worldwide. Yet even before the pandemic, the country had been battling one of the world’s worst bad debt problems in its financial sector, which claimed a string of lenders and left banks reluctant to lend to the most vulnerable businesses.

The international funds are now attempting to fill that void. In doing so they face a string of challenges including India’s complicated regulatory framework and tax laws, which often require intricately structured transactions. Deals often take long to close or even fall through. Yet many investors are betting that long-term factors will bring them returns.

“India’s economic growth, demographics and stressed assets will come together in the coming decade, giving investors an opportunity of a lifetime,” said Jai Saraf, founder at London-based Nithia Capital. The firm focuses on stressed assets in the steel sector and agreed to buy a steel plant in India along with CarVal Investors, a U.S.-based hedge fund.

Part of the attraction for the biggest global investors is the nature of the country’s nascent financial markets. While traditional banks were focused on cleaning up their piles of bad debt, shadow lenders stepped in to keep funds flowing. But the collapse of an infrastructure financier two years ago triggered a cash crunch that has slowed lending to businesses. Mutual funds dabbling in the riskier part of the credit market have also pulled back and Franklin Templeton earlier this year suffered the biggest ever forced closure of funds in India.

Indian banks had the world’s worst bad loan ratio among major economies even before its strict lockdown began in March, throttling economic activity. The central bank now estimates soured assets will rise to an over two decade high of 12.5% by the end of March 2021, from 8.5% a year ago, a sign of the difficulties businesses face.

India’s domestic financial market lacks the ability to fund the risk capital needed to resolve the stressed assets that result, said Nipun Sahni, a partner at Apollo, which in April ended its joint venture with a local bank to set up its own Indian team.

In December last year, a consortium led by Goldman Sachs Group Inc. and global investment firm Varde Partners LP agreed to buy 65.75 billion rupees ($922 million) of debt from an Indian power company in one of the largest restructuring deals outside the nation’s bankruptcy court. While the Wall Street giant is investing largely in growing companies in the country, the deal by its structured credit trading desk offers a look at the opportunities big name investors are seeing in Indian businesses that have faced cash shortfalls.

India’s underlying economy remains supported by compelling demographic and economic growth trends, creating substantial opportunities for investors, said Haseeb Malik, Partner and Head of Asia Corporate and Traded Credit at Varde Partners.

“We expect to see a significant wave of motivated sellers of high-quality assets, and in the medium to long term, deeper balance sheet restructurings,” said Malik.

Los Angeles based Ares — another global credit giant — bought a majority interest in Asia-focused hedge fund SSG Capital, giving it access to an India-based deal-making team. Local Funds are piling on too. Mumbai-based Kotak Investment Advisors raised an over $900 million special situations fund last year, and expects to have invested over a quarter of that by the end of 2020.

But despite the rush to invest, problems remain. CarVal Investors says it would still like to deploy more money in India for the right deals, but also sees obstacles. “One of the critical ingredients missing in the Indian system is a pre-packaged insolvency, where existing lenders, sponsors, and new money get into a room and work out a deal, and the court then blesses it,” Managing Director Nimrod Wei said.

The influx of foreign funds may also add to competitive intensity and squeeze returns. Ares-backed SSG unsuccessfully bid against CarVal and Nithia for the steel assets. Meanwhile, Ares won against Cerberus in its bid for failed shadow lender Altico Capital.

Yet, India’s cleansing of its financial system has a way to run, and there’s “a ton of opportunities left,” said S. Sriniwasan, managing director at Kotak. “Probably we are not even halfway through it and the stress could get worse before it gets better.”- Bloomberg

Also read: PM Modi’s pitch to global investors — put your money in India’s urbanisation and mobility


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  1. Every 10yrs, Wall Street will staged a global crisis. Then West institutions will “invest” aka scoping up stressed assets at fire sale price.

    That’s how growing Asean lost 90% of national assets in 1997 crisis to West overnight, where SKorea sold all its 10 chebols responsible for its 90% GDP. Today Samsung is 89% owned by Wall Street funds, sucking over 20% of SK GDP. Its india time now.

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