Global PEs bullish on India credit business even as NBFCs feel the pinch

Global private equity fund managers such as Brookfield Asset Management and KKR are bullish about the credit business in the country at a time when non-banking financial companies (NBFCs) are going through a severe liquidity crunch.

NBFCs have been battling liquidity issues since the IL&FS defaulted in August last year. They have been raising funds overseas, selling mortgaged assets, among others, to shore up their balance sheets and correct asset-liability mismatch. Loan sanctions by NBFCs have fallen 31 per cent in the fourth quarter of FY19 due to a crisis in the sector. 

Canada’s Brookfield, which runs an alternative investment fund (AIF) for credit, plans to ramp up the business to $1 billion this year, said a source in the know. Brookfield has lent about $500 million to Indian corporates, mainly real estate developers, in the last four years since it started its business.

“There is significant stress in the market and developers’ balance sheets are stressed. Nobody is doing big transactions. There is a significant opportunity to ramp up portfolio,” said the source.

The source added that for deals of $200 million and above, there is not much competition and hence Brookfield holds a chance. “Opportunity also comes from the fact that existing lenders are willing to take a hair cut and borrowers are willing to right size the debt,” the source said, adding that Brookfield is also looking at buying out the NBFC loan books which are up for sale.

“It would like to buy loan books at the right price,” the source added.

Brookfield did not comment on mail. On the other hand, KKR is also betting big on the credit business. Currently, it is in the market to launch a Rs 5,000 crore India-focused credit fund which is expected to be raised this year.

KKR has two NBFCs — KKR India Financial Services and KKR India Asset Finance. The latter focuses on real estate loans. KKR disbursed Rs 8,173 crore corporate loans and Rs 4,256 crore real estate loans in 2018 — almost double of what it did in 2017 in both the segments.

It disbursed about Rs 1,000 crore in real estate financing from January to March this year, including a major deal with Bengaluru-based Embassy group and the KB Kothari group. 

It also lent Rs 300 crore to Baby Memorial Hospital in Kozhikode in Kerala, said sources in the know.

BV Krishnan, chief executive officer of KKR India Financial Services, told Business Standard in April that in both the cases  — corporate finance and real estate finance — the deal volume was going up given the lack of alternative forms of long-term capital.

He added that there is a growing need for rescue financing, including one-time settlements to existing creditors, in case of good businesses with bad balance sheets. “This is creating a deal flow in the segment that we feel will be additive to our efforts in the private credit space,” he added. Amit Goenka, managing director at Nisus Finance, said, “There is enough distress opportunities in the market and global funds are looking to do transactions at good returns, may be in the early 20s.”

BIG Deals

• Loan sanctions by NBFCs have fallen 31% in Q4 of FY19 
• Brookfield plans to scale up its loan book to $1 billion
• Brookfield has lent $500 million in the past four years
• KKR disbursed Rs 8,173 crore of corporate loans, Rs 4,256 crore of real estate loans in 2018 
• It disbursed about Rs 1,000 crore in real estate financing from January to March this year