Delhi-based DMI Finance Pvt. Ltd, a non-banking financial company (NBFC), is raising a fund of up to Rs1,000 crore to focus on special opportunity situations in the real estate sector as well as the distressed assets space, a senior executive said.
DMI Finance, founded in 2008 by former Citigroup Inc. executives Shivashish Chatterjee and Yuvraj Singh, is an India-focused financial services company with businesses in corporate lending, housing finance, consumer finance and asset management.
The company has raised $300 million across its businesses since 2008 and disbursed over Rs4,000 crore. Its investors include global institutions and ultra-large family offices. In 2013, the Burman family, promoters of consumer products maker Dabur India Ltd, bought a minority stake in the company.
“We are looking to raise around Rs1,000 crore for the fund. We expect an initial close of around Rs300 crore in the next 3-4 weeks and the final close by March 2018,” said Shivashish Chatterjee, co-founder and joint managing director at DMI Finance.
On the real estate side, the firm’s strategy is driven by pressure created on developers’ financial health due to a slowdown in residential real estate sales over the recent few years and the introduction of the Real Estate (Regulation and Development) Act, Chatterjee said.
“In the last 3-4 years in the residential space, there has been a significant slowdown in final sales. End buyers have stepped away from markets. Land sales have come almost to a stand still. High end projects have come down fairly dramatically. The lack of final sales means the cash flow visibility that most real estate developers need in order to service the current levels of debt, is not there,” said Chatterjee.
Smaller, weaker real estate players are also being hit by RERA, which is putting significant pressure on their flexibility and margins, he said.
These pressures are creating the need for these developers to raise equity.
“So, we are seeing and continue to anticipate seeing motivated sellers in the real estate space, and these sellers are going to be across the spectrum, at the land stage, partially completed project stage, and in the completed inventory space. These people need equity, they want someone to come and buy these assets off their hands,” said Chatterjee.
On the non-real estate side of the fund, DMI is looking to tap the opportunity created by the fallout of the Rs10 trillion non-performing assets (NPA) problem plaguing the banking system and the implementation of the bankruptcy code.
“With a functioning bankruptcy code there is a very specific need, which is well understood in the West, to be a super senior lender into a bankruptcy proceeding. That is a form of distressed lending that is extremely well secured,” said Chatterjee.
The fund’s strategy on the stressed assets side will see it partnering with asset reconstruction companies (ARCs), focusing on asset disposal rather than turnaround.
“We will be working with partners who are specialists in the field, especially the ARCs, as they have built significant expertise in resolution of NPAs. We are currently not planning to get into turnaround situations. We are looking to acquire assets from companies that are willing to sell them or banks that are willing to sell underlying assets. We will work on asset disposal as against turnaround,” said Chatterjee.
While it is focusing on two distinct strategies through this fund, DMI expects a larger set of investment opportunities to come up on the real estate special opportunity side, at least in the initial year or two.
“Initially, we expect to see more activity on special opportunities in real estate, but over time as the bankruptcy code takes hold and as banks become more amenable to selling, we do expect to see more investment opportunities in distressed assets,” he said.
The fund expects to make around 20-25 investments over its investment lifetime of 3-4 years. While capital is being raised from both domestic and overseas investors, the fund will have a larger proportion of overseas investors.