Indian cos raise $6 bn from private credit in first-half 2024: EY report

Real estate, healthcare firms push private credit deals to record high

Private credit deals in India surged 22.4 per cent to an all-time high of $6 billion in the first half of 2024, compared to $4.9 billion worth of deals reported in the same period of calendar 2023. Reliance Logistics and Warehousing, owned by Reliance Industries, and Vedanta Semiconductors emerged as the largest borrowers from private credit.

While Reliance Logistics topped the league table as it secured $697 million from private credit, Vedanta raised $301 million, according to EY, a multinational consultancy firm.

Over the past two and a half years, private credit transactions have surpassed $20 billion, spread across 96 deals. This significant increase highlights the rising demand for capital, especially in sectors like real estate, infrastructure, and healthcare. This trend is occurring despite the fact that private capital expenditure has not yet surged significantly, according to the report by EY.

The increased activity in private credit is largely driven by domestic funds, which are capitalising on lower costs and local expertise. Major deals involving Reliance Logistics, Vedanta Semiconductors, and Matrix Pharma accounted for $1.3 billion, according to the report. This marks a shift in the market as India’s maturing credit ecosystem favours performing credit deals over high-yield alternatives, stated the report.

Private credit focuses on lending to companies, providing debt financing at a higher interest rate rather than taking ownership, while private equity involves investing in private companies by acquiring shares.

“Amidst geopolitical uncertainties, India’s robust economy, stable currency, and strong banking sector stand out, making the country an attractive investment destination,” said Bharat Gupta, Partner, Debt and Special Situations, EY India. “Private credit investments are at an all-time high, driven largely by growth-oriented strategies. The outlook remains promising, though thorough due diligence and effective deal oversight are crucial to maximising returns and managing potential risks."

As the private credit ecosystem in India matures, there is a subtle shift towards performing credit deals in India, with funds increasingly engaging in sub-18 per cent Internal Rate of Return transactions. In the high-yield segment, mergers and acquisitions/buyout deals, and bridge-to-initial public offering transactions have gained traction within private credit funding, according to the report.

EY’s report projects that private credit investments could reach $5-10 billion in the next 12 months, with growth expected to continue in real estate and manufacturing. High-net-worth investors and family offices are increasingly eyeing private credit as a lucrative asset class, further driving the market forward.

“While significantly improved credit discipline has reduced stress-driven investment opportunities, strong corporate balance sheets are opening new avenues for partnership in acquisition and capex-led financing. Indian private credit continues to thrive, with robust fund-raising and active registration of new funds,” said Dinkar Venkatasubramanian, Partner, Head of Debt and Special Situations, EY India.

Interestingly, in the same period (H1 of calendar 2024), total private equity deal value recorded a decline of 10 per cent at $17 billion, primarily driven by a 20 per cent year-on-year drop in deal volumes at 65 deals in H1 2024.