Growing capital needs and relatively low leverage are building lenders’ confidence in financing larger Indian deals. — Bloomberg
MUMBAI: The market is warming to large private credit deals in India, where local borrowers are typically less levered than their peers in the rest of Asia, according to Indranil Ghosh, managing director and head of pan-Asia special situations at Cerberus Capital Management.
Cerberus, which has US$65bil under management globally, was among the anchor investors in Shapoorji Pallonji Group’s US$3.4bil financing, the country’s largest private credit deal to date.
While deals of that scale are still a rarity, growing capital needs and relatively low leverage are building lenders’ confidence in financing larger Indian deals, Ghosh said. Deals this year are already picking up.
KKR Inc inked its largest-ever credit investment in India with a US$600mil financing for conglomerate Manipal Group.
And Indian clean energy producer Greenko Energy Holdings signed a US$650mil private credit deal to buy back a stake in the company.
Even three years ago, seeing multiple Indian deals larger than US$100mil would have been unthinkable, Ghosh said.
“We expect this trend to continue as Indian companies have significant capital needs,” said Ghosh.
A major draw for global investors like Cerberus has been Indian companies’ balance sheets. On average the loan-to-value ratio among Indian private credit borrowers, which measures the size of a financing against its collateral, is about 40%, Ghosh said.
“In the rest of Asia, and even in developed markets, the gauge would be over 60%,” he added. Lower ratios give investors confidence they’ll be repaid if borrowers are required to sell assets.
Shapoorji’s deal, for instance, closed at a loan-to-value ratio of about 16%, one of the key factors that attracted global lenders like Ares Management Corp and Farallon Capital Management.
Despite the market’s growth, deal sizes in India, and Asia more broadly, still pale in comparison to more established private credit markets in the United States and Europe.
The region only accounts for about 7% of the global market, according to a March PwC report, and lenders still tend to focus on smaller, higher-yielding or distressed deals.
A rush of new local private credit funds setting up shop in India for the first time see this as a huge opportunity.
Motilal Oswal Financial Services is opening its first private credit fund, and Kotak Alternate Asset Managers Ltd has plans to raise as much as US$2bil, targeting returns between 18% and 20%.
Even the government is piling in – with India’s quasi-sovereign fund, the National Investment & Infrastructure Fund, planning to raise as much as US$2bil in its latest private credit fund, backed by global investors including the Abu Dhabi Investment Authority.
The Trump administration’s tariffs could also be a tailwind for India.
This is as several asset allocators are “increasingly exploring ways to diversify” into other parts of the global economy, said Ghosh.
Ghosh said he could see some asset quality issues for small and medium enterprises with cyclical businesses or governance issues, but he does not anticipate any imminent large-scale defaults in Indian private credit. — Bloomberg
