India’s stressed assets pique interest of global investors
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 Yorkbased 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 include others that have been recently announced such as Oaktree’s ₹2,200 crore ($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 US 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.
Part of the attraction for the biggest global investors is the nature of the country’s nascent financial markets.