Distressed asset funds plan Rs 5,000-cr corpus

With stock market valuations sliding fast, funds that invest in distressed assets are beginning to see new opportunities in India.

Abu Dhabi Investment House (ADIH), Global Realty and Yes Bank are all planning to launch their distressed asset funds. Halcyon and Edelweiss already have such funds. The combined fund-raising efforts of these five firms could mean a war chest of Rs 5,000 crore.

“There is definitely a lot of investor interest in the distressed side of the business. Cash-strapped companies are also approaching us for strategic investors,” said Shefali Goradia, partner, BMR Advisors, a consulting firm.

According to sources, these funds are looking at sectors like real estate, pharmaceuticals and aviation, which have been badly hit due to the slowdown.

ADIH, one of the largest investors in Central Asia, is planning its distressed fund to invest in clean technology and pharmaceuticals. They are looking at markets like North Africa, Asia and Europe, according to reports. ADIH did not respond to an e-mail sent by Business Standard.

New Delhi-based Global Realty is launching a $500 million (Rs 2,500 crore) distressed asset fund, led by Bipin Agarwal.

“A lot of projects in the country are now available at one-tenth of their peak valuations. We have received many requests from enthusiastic investors from the US and Europe,” said Agarwal.

The Mumbai-based Halcyon Enterprises is planning two more distressed asset funds – a domestic fund of Rs 500 crore and an international fund of $150 million (Rs 750 crore). The international fund intends to invest in foreign currency convertible bonds (FCCBs). Halcyon’s existing distressed asset fund has a corpus of $300 million (Rs 1500 crore) and has invested in at least companies.

Yes Bank is also planning a Rs 500-crore fund this month in partnership with a West Asian bank.

However, some experts are sceptical about the ability of these firms to raise more funds. “It is very difficult to raise several millions of dollars to invest in distressed assets as there could be legal issues. More importantly, nobody has mapped the opportunity in this space,” said an executive director of a global investment bank.

Even firms launching distressed asset funds agree that they are facing challenges. Co-founder and Managing Director of Halcyon Abhay Soi said, “While there is this talk about distressed assets being an attractive area of investment, not many deals have been closed because of high valuations. There is also a mismatch between what promoters are demanding and what a fund is willing to pay.”

Recently, Edelweiss has scaled down the size of its earlier distressed fund from $200 million (Rs 1,000 crore) to $150 million (Rs 750 crore).