High-Value Deals, New Players: All That's Creating Buzz In Private Credit

Private credit transactions worth $4 billion have happened during the first half of 2023, as credit players try to gain from opportunities by providing capital to corporate borrowers.

Based on publicly available information, EY tracked 18 transactions wherein $4 billion have been deployed during the first half of 2023, according to a detailed private credit activity report. The list excludes venture debt, debt funding in financial services players and offshore bond raises.

“Actual data can be a lot more as not everybody discloses the details and market size is much bigger ... $5 billion worth of transactions primarily happened in the first half of last calendar year," Bharat Gupta, partner at EY India, told BQ Prime.

There were hardly any transactions in the second half of last year due to multiple factors like inflation, interest rate increases and uncertainty around global supply chain, which led to drying up of the transactions during the period, said Gupta.

Barring the two high value deals within the real estate and metal and mining sector, the average ticket size for these identified transactions was $75 million. Real estate, pharma, and manufacturing sectors witnessed strong inflows.

Even as the overall deployed number is lower than last year, this year will see more transactions of higher value, as compared with what was seen in the previous year, according to Gupta.

Shift In Focus

Private credit transaction fundraisers that happened last year were majorly focused on distressed situations. “With Non-Performing Assets at scheduled commercial banks at historical lows, the distress asset investing pipeline is showing signs of a slowdown and increasingly, fund managers are pivoting towards structured solutions for special situations like acquisition financing, bridge to IPO, capex solutions, etc.,” said Gupta.

With debt mutual funds seeing outflows as tax advantages are gone and NBFCs' focus shifts to retail loans, private credit players continue to capitalise on opportunities left by non-banking financial companies, mutual funds and conservative scheduled commercial banks.

Based on publicly available information and the EY report, some of the fundraise activities announced during the first half of the year include:

• Kotak Strategic Situations Fund II, domiciled in GIFT City, raising $1.25 billion.

• Centrum Alternatives raising its second private credit fund that would more than double its AUM under the asset class.

• Bain Capital-backed 360 ONE Asset Management Ltd. has closed its fourth private credit fund to raise more than $259 million.

• ASK Group planning to raise $122 million for its inaugural private credit fund.

Key Players

Edelweiss Alternative Asset Advisors Ltd., Kotak Alternate Asset Managers Ltd., Barings and Piramal Alternatives are the key private credit players in India, while the international players such as Apollo Global Management Inc., Oaktree Capital Management LP, Varde Partners LP, Cerberus Capital Management LP, Bain Capital LP and PAG have also been actively investing. Edelweiss currently has approximately $4.5 billion of assets under management in the private credit bucket.

“The deal sizes have also grown bigger and that last issuance of $1.7 billion from the Shapoorji Pallonji group was one of the largest the market has seen. However, the maximum deals are in the $25 million-$100 million range, given the size and space of industry,” said Amit Agarwal, president-private debt, Edelweiss Alternatives.

In recent months, many domestic players have launched multiple private credit funds. All the current buzz in the space can be credited to many new entrants raising small capital, according to Agarwal.

“For the last five years, the private credit market has been in a stable situation. The industry is also seeing a lot of new players and first-time funds tapping the domestic investor appetite for private credit to raise Rs 500–1,500 crore funds in India looking to invest in corporate credit.”

There is strong interest among family offices and high-net-worth individuals to invest in private credit funds, which according to industry experts seems to be a rising trend. If the momentum continues, domestic capital will likely play a much larger role in fuelling the growth of private credit in India.