Ajay Piramal ties up with Bain Capital for a $750 mn-$1 bn distressed debt fund

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MUMBAI: Ajay Piramal‘s flagship Piramal Enterprises Limited and Bain Capital Credit have signed a Memorandum of Understanding (MOU) to create a strategic partnership to invest in restructuring situations in India.

Once finalized, the platform will invest capital directly into businesses or may even acquire debt of such businesses to drive their restructuring. Even though the exact fund size was not disclosed, sources said the plan is to aim for a $750 million to a $1 billion dollar fund. A late Tuesday evening statement from Piramal and Bain said, both the sponsors believe that there is over a $1 billion investing opportunity in this space over the next few years.

Sources also add, there could also be some external investors in the platform as well.

The platform’s mandate would be to look at all sectors other than real estate. Within these, the platform’s preference will be to invest in businesses that require restructuring and have fundamentally strong growth prospects linked to India’s infrastructure and consumption needs.

Both Piramal and Bain Capital Credit have significant experience and a long track record in investing. Bain Capital Credit has invested in this asset class for 15 years in North America, Europe, Asia and Australia.

Earlier this year, Piramal had earlier toyed with the idea of launching one of the largest distressed asset fund with a corpus of around Rs 6000 crore.

The Piramal India Resurgent Fund, in partnership with Nirmal Gangwal, MD and founder of Brescon Corporate Advisory, was pegged to be the first domestic fund focused on acquiring stressed loans. Gangwal was to bring in 10% of the capital. But those plans did not fructify.
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Shantanu Nalavadi, Managing Partner of Piramal Capital, a private equity veteran, who also spearheaded Piramal’s efforts to acquire Lafarge’s India cement business, will lead this strategic partnership.

“We think the recent banking reforms focused on effective and timely resolution of stressed assets, augers well for players like us,” said Ajay Piramal, Chairman, Piramal Enterprises Ltd. “Given our strong relationships and credibility with bankers, entrepreneurs and regulators, we are well-positioned to restructure these assets and play a meaningful role in resolving over-levered capital structures in the country, which in-turn would eventually fuel the growth in the economy,” he added.

Jonathan Lavine, Co-Managing Partner of Bain Capital, said, “Bain Capital Credit is one of the world’s leading providers of capital for special situations globally, and we’ve steadily built our capabilities in this space in Asia during the past several years.”

Till last December, Amit Chandra, MD of Bain Capital private equity in India was an independent director of Piramal Enterprises.

The growing pile of stressed corporate assets in India, where gross non-performing assets (NPAs) of 40 listed banks rose to Rs.5.82 trillion at the end of March, up 93% from Rs.3.02 trillion a year ago, has given a golden opportunity for special situation credit providers to form strategic partnerships. Foreign investors too have increasingly shown interest.

Last month, State Bank of India (SBI) and Brookfield Asset Management Inc. propose to launch a joint venture (JV) fund to which the Canadian partner has agreed to commit Rs.7,000 crore to purchase distressed assets.

Prior to that, in March, Kotak Mahindra Group tied up with the CPP Investment Board to launch a $525 million distressed asset fund to invest in India. The Canadian pension fund manager will have the option of investing up to $450 million in the partnership, it said.

In the same month, New York-based private equity firm JC Flowers & Co. had formed a joint venture with Ambit Holdings Pvt. Ltd to launch an asset reconstruction company (ARC) to acquire stressed assets in India. In 2014, New York headquartered Apollo Global Management raised a $825 million investment platform in partnership with ICICI Venture called Aion India Advisors.

With the Parliament passing the Insolvency and Bankruptcy Code 2016, analysts expect the enabling environment getting created to ensure time-bound settlement of insolvency, faster turnaround of businesses, and the creation a data base of serial defaulters.

The RBI too had tightened the screws around wilful defaulters and bad loans in the banking system. The regulator had also sought suggestions from private equity firms for their role in providing risk capital to recapitalise the stressed assets held by the Indian banks. RBI also introduced a strategic debt restructuring mechanism last year that enables lenders to convert a part of their debt into equity. But, there has been limited progress in asset
sell-offs.