Distressed asset investors such as PAG, Oaktree and Varde Partners are capitalising on the current real estate situation in India. These global investors have poured millions of dollars into the country in recent years, as demonetisation, the crisis in IL&FS and non-banking financial companies have resulted in a lack of credit for property developers in the country. Further, the pandemic aggravated the crisis.
While most of the domestic lenders such as Edelweiss, Indiabulls and others stayed away from lending to real estate in the aftermath of the NBFC crisis and DHFL and Altico Capital went out of business, the opportunistic credit funds saw a big opportunity to lend to cash strapped developers and lent nearly $3 billion to them, experts said.
For instance, PAG, Asia’s biggest multi-asset manager, has lent about $1.3 billion to property developers in the last four years, of which 90% was in the last two years, said sources in the know.
Earlier this year, it collaborated with Shapoorji Pallonji Real Estate, Indiabulls Housing Finance and Lokhandwala Kataria Constructions for reviving the stressed Minerva luxury project in South Mumbai. It had lent to Shapoorji Pallonji Real Estate Rs 750 crore in 2020.
Last year, PAG lent `900 crore to Elan Group for acquisition and growth purposes. It manages capital on behalf of nearly 300 institutional fund investors, and manages over $50 billion in assets under management.
A mail sent to PAG did not elicit any response.
US-based Oaktree Capital, the $172-billion investment group, is also not behind in cutting deals in real estate. Recently, it was in the news for a `5,000 crore deal with Indiabulls Housing Finance to take over developer loans given by the housing finance company. Oaktree also did a similar deal with Indiabulls in the past.
It has also done a couple of deals with property developers in the recent past. In 2021, it invested Rs
425 crore in a luxury residential project, 25 South in central Mumbai, owned by property developer Hubtown and private equity firm Rising Straits Capital. Before that, Gurugram developer M3M India raised Rs 570 crore from Oaktree through non-convertible debentures across two tranches. Oaktree declined to comment.
US-based Varde Partners is also betting big on Indian real estate. Late last year, its managing director Sandeep Chandak said the firm is looking to invest $800 million to $1 billion across six to eight deals. Last year, it lent
440 crore to Omaxe and400 crore to Chennai-based Casagrand to buy land parcels.
In addition, Varde Partners acquired a 15% stake In Reliance Power for Rs 933 crore. Reliance Power is part of the Anil Ambani ADAG Group. Varde had infused nearly Rs 550 crore into Reliance Infrastructure.
Varde has already deployed over $3 billion across 20 different transactions in India in the last 4 years, reports said last year. Varde was founded in the year 1993 and has since invested over $95 billion across regions like North America, Europe and the Asia Pacific. An email sent to Varde Partners did not elicit any response.
“All these funds are opportunistic credit funds that were waiting for IBC to happen and mature. It took a couple of years. IL&FS issue and demonetisation bundled up which offered greater opportunities for them to invest,” said Vishal Srivastava, executive director at Anarock Capital.
Insolvency and Bankruptcy Code (IBC) 2016 provides for a time-bound process to resolve insolvency. When a default in repayment occurs, creditors gain control over the debtor’s assets and must make decisions to resolve insolvency. Under IBC, debtor and creditor both can start ‘recovery’ proceedings against each other.
“In some of these deals (done by distressed asset investors), the loans had become NPAs. Developers and bankers were stuck. These are not straight-jacketed deals. For providing solutions, they need to be adequately compensated.,” Srivastava said.
He added that the special situation/distressed investors charge between 20 to 22%.
Added the managing director of a PE fund: “When traditional NBFCs went slow on lending to clean up their balance sheets, the distressed funds saw a huge opportunity to lend. The pandemic also aggravated the credit situation in real estate which in turn opened further avenues to these global funds,” he said.