Billionaire-Backed Fund Wades Into India Bad Debt Cleanup

(Bloomberg) -- An asset manager backed by Asia's richest banker has finally invested in a stressed Indian asset, in a positive sign for the broader push to clean up the nation's massive pile of bad debt.

Kotak Special Situations Fund invested 5 billion rupees ($69 million) in beleaguered Jindal Stainless Ltd., India's largest stainless steel producer, according to a statement. The fund is backed by billionaire banker Uday Kotak.

India's efforts to clean up bad loans have caught the eye of global investors, but many money managers have held back due to difficulties agreeing on valuations. Any rise in investments could help policy makers who are struggling on several fronts now with the economy slowing and the nation still trying to put a shadow banking crisis behind it.

The investment by Kotak Special Situations Fund is in the form of debt and equity to help it out of debt restructuring, the fund said. It's the first deal by the $1 billion fund launched last year by Kotak Investment Advisors Ltd., and comes after a similar fund set up in 2016 by the manager wound down after a year without a single transaction.

Kotak's fund will hold a stake of about 5% in Jindal Stainless after the deal is completed. The investment will help the steel company to repay its dues to banks, according to the statement.

Banks have written off loans worth 7.8 trillion rupees since 2014, according to Credit Suisse AG, allowing the lenders to sell those debts cheaper.

“Now that banks have taken a substantial writedown on their old portfolio, it is easier for them to meet pricing expectations of bidders,” said Eshwar Karra, chief executive officer at Kotak Special Situations Fund. “Non-bank finance companies that were very active in the structured credit space have vacated the area due to their crisis leaving the field open to special situation funds like us. I see a lot of activity going to happen in this space.”

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Any boost to the bad debt cleanup effort couldn't come too soon. India's economy is set to grow at the slowest pace in almost a decade. That's eroding borrowers' capacity to repay and is adding to the bad loan mess.

The corporate stress is set to worsen further as at least 10.5 trillion rupees of debt is vulnerable to default over the next three years, according to India Ratings, a local unit of Fitch.

Meanwhile, an asset reconstruction company backed by Kotak has also been buying stressed assets.

“As special situations fund managers are trained to think in a contrarian way, an economic downturn gives us more opportunities to pick up assets,” Karra said.

To contact the reporter on this story: Rahul Satija in Mumbai at rsatija1@bloomberg.net

To contact the editors responsible for this story: Andrew Monahan at amonahan@bloomberg.net, Anto Antony

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