Private credit comes as a new avenue for SMEs to raise capital

Mumbai, June 23

The country’s SMEs have a new avenue to raise capital in the form of private credit as it provides a rare opportunity to invest in one of the world's hottest markets.

Of late, the country’s real estate and construction conglomerate Shapoorji Pallonji concluded the biggest ever deal raising about $3.4 billion, financing in India's biggest ever private credit deal, with about a dozen large investors buying zero-coupon rupee bonds that offer a 19.75 per cent yield and mature in three years.

Top investors include Ares Management Corp, Cerberus Capital Management, Davidson Kempner Capital Management, and Farallon Capital Management, with Deutsche Bank acting as the sole arranger of the deal and also investing in it.

Talking to Bizz Buzz, Ajay Manglunia, Executive Director, Capri Global Capital says, “Foreign investors are comfortable in this venture as it provides an opportunity to deploy in 3-year paper with a magnificent carry.”

At a point of time, Shapoorji Pallonji group was strained of liquidity and they were looking for infusion of funds via this route till they are able to monetise for repayment. I do see such types of deals worth a billion USD in the near future. Happy that finally high yield market in tradeable form is arrived, he said.

Of late, the deal has swelled foreign inflows into corporate bonds, with foreign investors buying a net 161.4b rupees of Indian company bonds recently.

Deutsche invested about $900 million and will down-sell a portion of the debt, adding that Cerberus and Davidson bought about $475 million and $425 million worth of bonds, respectively. Ares has committed about $500 million for subscribing to those bonds.

BlackRock is in talks with Deutsche Bank to invest about $100 million in the deal.

Despite the deal's attractiveness, there are potential headaches, including uncertainty about Shapoorji's ability to transfer its $18 billion stake in Tata Sons, which makes up most of the collateral for the deal.

There is uncertainty about Shapoorji’s ability to transfer a more than $18 billion stake in privately-held Tata Sons, which makes up most of the collateral for the deal.

There are a few big complications to Shapoorji’s latest financing, starting with the Tata Sons stake. It’s not clear if Shapoorji could transfer the shares, since Tata Sons’ directors have the ability to block certain share transfers. Shapoorji could challenge a block in court, but the two families have already had years of legal battles over the issue.

EoM.