Indian alternative investment funds are capitalizing on the opportunity presented by the void left by banks and non-bank lenders in the private credit sector, mirroring a trend seen across Asia. These funds are increasingly expanding their private credit business, catering to the needs of unrated and lower-rated companies in need of financing.
Prominent players like Kotak Alternate Assets Managers (KAAM), Edelweiss Alternatives Asset Advisors, InCred Alternative Investments, and Vivriti Asset Management are actively seeking to raise new funds or expand the size of their existing ones. The vacuum created by traditional lenders in the wholesale lending space has prompted these alternative asset managers to step in and seize the opportunity.
Edelweiss Alternatives, for instance, has already invested a substantial Rs 35,900 crore in private credit and is now aiming to launch a new real estate credit fund. Meanwhile, Vivriti Asset Management is looking to bolster its current private credit management of around Rs 3,500 crore by adding Rs 1,500 crore.
Growing credit
This surge in private credit deals aligns with the broader Asian trend, with deals in this sector totalling $5.3 billion in 2022. Notably, companies such as Rattan India Power and Shapoorji Pallonji group’s entity, Goswami Infratech, have recently raised capital from private credit funds.
In response to changing dynamics, alternative lenders are observing a shift in focus from providing capital primarily at the holding company level to a growing trend of operating companies seeking growth capital from such lenders.
While demand is apparent, challenges in closing deals arise due to the discrepancy between pricing and the actual risk involved. Mutual funds and non-bank lenders tend to target credit-rated “AA” and “A” businesses, leaving “A-” and “BBB”-rated entities seeking private credit options.
Private credit funds typically extend loans to these companies at interest rates ranging from 12% to 18%, with the riskiest segments yielding returns of 20% to 24%. However, these investments come with higher default risks, and exits can be complex due to the illiquidity of the securities.
Alternative lenders are adopting strategies to manage risks, such as diversifying portfolios and structuring deals to ensure consistent cash flows from borrowers. Overall, the private credit landscape in India is undergoing a transformation, with alternative investment funds stepping in to provide essential financing to companies that may have been overlooked by traditional lenders.
