‘With IBC, we started to look at India closely’ | The Financial Express

‘With IBC, we started to look at India closely’

Kanak Kapur, partner and managing director, Credit & Markets, PAG, discusses Indian real estate market and the investor’s India bet in an interaction with Raghavendra Kamath.

Kanak Kapur
Kanak Kapur, partner and managing director, Credit & Markets, PAG

Asia-focused investor PAG is believed to have lent about Rs 3,000 crore to Indian developers, becoming one of the single-largest lenders to the sector last year, when most non-banking financial companies were going slow on real estate. Kanak Kapur, partner and managing director, Credit & Markets, PAG, discusses Indian real estate market and the investor’s India bet in an interaction with Raghavendra Kamath.

PAG has been actively lending to Indian realty developers. What prompted PAG to get aggressive on Indian real estate?

PAG’s credit and markets business has been active in India for around 15 years. It first invested in a small loan portfolio in India in 2009. With the enactment of IBC in 2016, we started to look at India more closely, but the market initially remained crowded and scored low on risk-reward metrics. We have been instrumental in providing a reliable flexible pools of credit at appropriate risk adjusted returns. Over the years, we have ramped up our investment focus in India in line with the opportunities and have funded a number of deals there since.

Sources say you have lent about Rs 3,000 crore to developers in 2022 in India. Please comment.

We have funded a number of transactions in India in 2022 and cannot comment on individual investment. Each transaction is undertaken based on its individual strength and not based on the relative value of transactions vs other participants in the market. So, it would not be right to compare these with any other participant.

Sources said you have lent to land buying via deals in NCR and helped take over a stressed asset in a deal with Indiabulls and Shapoorji Real Estate recently. Please comment.

We do not comment on individual transactions.

With the high interest rates and economic slowdown, do you expect any headwinds in Indian residential real estate this year?

We believe Indian interest rates will remain manageable and in line with the historical range, albeit slightly higher than previous two to three years. Given Indian residential prices remained largely stagnant for most of the past decade, we believe affordability will spur demand despite an increase in interest rates. 

Will there be any change in this strategy by PAG in this year?

We will continue to focus on top tier counterparties, high quality projects in good locations, and structure our debt on a senior secured basis. We are partnering with developers who have a strong execution track record, and do not expect our strategy or underwriting criteria for India to change in 2023.

How does PAG view Indian real estate vis-a -vis peers in other Asian countries?

We believe the current Indian real estate market presents strong fundamental demand drivers, including favourable demographics, rising middle/upper class, strong GDP growth and shortage of good quality housing. And, as previously mentioned, there is a large funding gap which has emerged as a result of NBFCs stepping back their lending to the sector. Strong demand for completed stock and a lack of credit supply created an ideal investment environment for PAG, with several top tier counterparties offering excellent underlying projects.

How do you look at demand for private credit from real estate developers this year?

We believe demand for quality real estate product in India with reliable delivery timelines remains very strong. The real estate industry is consolidating and is now dominated by large reputable developers in each city with a good track record of delivery and quality. However, availability of credit locally remains muted, and banks remain restricted to only certain areas of lending like home loans, etc. Restricted supply of credit and strong underlying demand has provided us with plenty of counterparties and projects to pick from.

How do you look at rising competition in private credit space by both Indian and global funds in India?

We are not really focused on the competition. We have a 20-year track record of successful lending in the jurisdictions where we operate as well as experience in the broader credit market. We have strong underwriting capabilities, supported by a local on-the-ground team. We will continue to stick to our credit discipline, while providing reliable funding solutions to select counterparties.

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First published on: 07-02-2023 at 07:29 IST