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Värde Partners sees rebounding economy lifting credit demand

MUMBAI :

Värde Partners expects credit demand in India to surge, powered by a rebounding economy, the need for new sources of credit and the gradual institutionalization of the corporate credit market, a senior executive at the global alternatives investor said.

For Värde, which currently has an exposure of $2 billion to the Indian market, fresh lending forms roughly half of its investment activity here, with distressed credit making up the rest.

“Today, performing lending reflects roughly half of our investment activity in the region, and we expect to see more opportunities as the market continues to evolve,” Sandeep Chandak, managing director at Värde Partners, said in an interview.

Apart from rising bad loans, India has experienced extreme volatility in the non-bank lending sector, leaving borrowers with few options to access funds, Chandak said.

“The additional impact of covid-19 has led to an even greater demand for alternative credit, creating an opportunity to lend to and support good quality business. Ultimately, the market for credit and assets has grown consistently against the backdrop of constrained supply of capital, underpinned by supportive fundamentals,” said Chandak.

“The sheer scale of credit demand creates a wealth of investment opportunities but requires the necessary infrastructure and relationships to access the market. The ability to filter deals and underwrite credit quality is just as important, if not more so than the market for distressed,” he added.

While Värde doesn’t have a dedicated geographic allocation of capital, Chandak said that he sees both the size of the team and capital deployed in India to continue to grow. India represents 36% of Värde’s Asia-Pacific investments, the largest commitment in the region. The firm has a strategic partnership with Aditya Birla Capital in India.

Värde has done deals across sectors, including the $155 million facility to refinance and fund the completion of over 2.5 million sq. ft across two Grade A developments owned by Phoenix Group, located in Hyderabad; deals with GMR Airports and GMR Infrastructure and buying Punjab National Bank’s exposure to KSK Mahanadi Power along with Aditya Birla Capital.

Värde is also evaluating opportunities in the distressed credit space alongside fresh lending.

Chandak said that the firm is seeing more proactiveness from banks on resolving stressed situations before the assets land up in the insolvency courts.

While the Insolvency and Bankruptcy Code (IBC) has led to some large resolutions, helping improve India’s corporate credit culture, procedural issues and long-drawn timelines for bankruptcy resolutions have made the IBC a little less attractive in some cases.

“From our experience of one-time settlements, we have seen dynamism from the banks and other stakeholders and a real willingness to resolve issues ahead of a formal IBC process. Through the IBC framework, there is a clear process to reach a fair settlement for all parties ultimately. However, if things can be agreed and resolved ahead of a formal process, it’s in the best interests of all stakeholders,” Chandak said.

“It achieves a quicker outcome for all parties and, most importantly, puts the business back on a stable financial footing sooner, with the right capital in place to support a return to growth and take advantage of market opportunities,” he added.

Värde was part of a consortium of investors that led one of the biggest one-time settlements in India worth $922 million in the case of distressed power producer RattanIndia Power Ltd in December 2019.

IBC was a game-changer that gave investors certainty around the legal framework, and how regulators were approaching the market. The stability around the IBC framework has been commendable and builds greater confidence among investors, which will help to attract even more international capital, Värde said.

“As far as percentage haircut is concerned, we believe it should be looked at on a case-by-case basis and it is difficult to generalize that as an ‘average’,” he added.

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