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Partnership model drives distressed assets opportunity: Panellists at VCCircle event
(L to R) Reliance ARC's Ravindra Rao, AION Capital's Kalpesh Kikani, Centrum's Rakshat Kapoor and Mosaic Digital's Jaideep Mehta

A new crop of investors are emerging in the broader distressed assets segment that are catering to companies that are troubled but are not yet non-performing assets, panellists at the NewsCorp VCCircle Stressed Assets Investment Summit 2019 said.

The panel titled ‘Designer Funding’ included Kalpesh Kikani, senior managing partner at AION Capital, which specialises in credit and distressed situations; Ravindra Rao, executive director and chief executive of Reliance ARC and Rakshat Kapoor, partner for private debt at Centrum Alternatives. The discussion was moderated by Jaideep Mehta, CEO of Mosaic Digital, which owns News Corp VCCircle.

Traditional investors like banks and non-banking finance companies are slowing the deployment of their capital. This has caused credit funds to rise, and in recent times, family offices have rapidly emerged as a new investor class for stressed assets, said Centrum’s Kapoor.  

Family offices that have traditionally acted as Limited Partners in funds are also directly investing in stressed asset opportunities, Kapoor said. 

While asset reconstruction companies have assessed opportunities in the space, the capital available with them is still not adequate enough to cater to the market size, Reliance ARC’s Rao said.

The lack of capital has compelled most bidders to approach the distressed assets opportunity via a partnership model, panellists agreed.

“Often, it is because of capital requirements or the need to have a partner who has the technical expertise to run the show,” said Kapoor.

However, for investors, the challenge is to forge a working relationship with partners who will have different motivations. For instance, financial investors mostly look at profitability or returns, while strategic investors are likely to focus more on increasing their market share. Strategic investors also have a longer time horizon than financial investors, AION Capital’s Kikani said. 

According to Kikani, these partnership models are also likely to evolve over time. Global and domestic strategic investors will soon find the opportunities too small for their effort and time.

“The size will no longer be compelling. I see specialist financial investors partnering with management teams in the next round of buyouts,” Kikani said. 

AION Capital partnered with JSW Steel to successfully bid for Monet Ispat last year.  

The market size of opportunities in the non-performing loans (NPL) space is pegged at $150 billion, panellists said.

According to Kikani, the universe of such opportunities is close to $300 billion.

The companies that fall under such opportunities would be those that initially miss their targets and internal projections, those in default of loans, and finally those firms whose loans are overdue by 90 days and categorised as NPLs.

“We see this as a full continuum. There are few providers of this kind of capital because this requires a different kind of a skill set,” Kikani said.

AION Capital has made a combination of structured credit, stressed assets investments and equity deals.

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