Private credit deals have seen a jump of 47% in CY2023 to $7.8 billion in value terms compared to $5.3 billion in CY 2022, said auditing and consultancy firm EY in a report. The number of deals went up to 108 in 2023 from 77 in 2022, the report said.The increase in both deal count and value was fuelled by several factors, including the stabilisation of interest rates in CY 2023, heightened activity within the real estate sector and a notable increase in deal value resulting from certain large transactions executed during the year, it said.
The surge in deal value was also driven by the Shapoorji Pallonji group’s refinancing and Oaktree’s Vedanta group investment totaling $2.4 billion. This validates the presence of stress/special situation opportunities and aligns with EY’s January 2023 survey, where 38% of fund managers predicted stress-related deals as the primary driver for private credit deals in CY 2023, it added.
Bharat Gupta, debt and special situations partner, EY India, said, “A growing economy, a cautious banking sector and a deliberate reduction in the wholesale books of NBFCs continue to provide a fertile ground for funds to grow and deploy capital.”Despite real estate being recognised for its elevated risk by fund managers, the sector continues to see high deal activity. Fund managers remain optimistic regarding the availability of sufficient funds, resulting in an increased fund registrations and fundraising over the last 12 months. Numerous funds showcased a robust number of exits, strategically unlocking value across diverse sectors. While optimism prevails, managing risk and post-deal monitoring are critical to ensure credit costs stay in check, Gupta said.
Based on data published by Sebi, in H2 of 2023, at least 11 new AIFs have been registered with credit/special situation orientation and five are in process for registration. Additionally, nine funds have announced new fund raises aggregating to more than $2 billion in H2 of 2023. In CY 2023, global funds contributed approximately 63% of the total deals by value, primarily due to their participation in large deals, EY said.
However, domestic funds led in terms of deal count, accounting for approximately 61%, owing to their focus on the mid-market segment and strong deal origination capabilities. The real estate sector continued to be dominant, attracting investments totaling $1.7 billion in CY 2023 compared to $1.6 billion in CY 2022, continuing to stay one of the largest sectors attracting investments, it added.The EY report also includes the private credit exits during CY 2023, which, based on the data tracked by EY, aggregated to approximately $2.3 billion.
The report included a survey of senior leaders from prominent Indian and global high-yield and performing credit funds, with half of them believing that over the next 12 to 24 months, capex-related financing will be the biggest driver of private credit deals, followed by stress-related financing. Realty was also seen by 50% of fund managers as the sector with the most deal activity over the next 12 to 24 months, closely followed by manufacturing. Interestingly, real estate was also perceived as the riskiest sector in the current private credit portfolio.