Global private equity (PE) firm the Carlyle Group has signed an agreement with SBICAP Ventures Ltd, the investment banking subsidiary of the country’s largest lender State Bank of India Ltd (SBI), to float its maiden India-focused distressed asset fund that could raise up to $1.5 billion, said two people aware of the development requesting anonymity.
“Carlyle and SBICAP have signed an agreement in the last week of February to set up a separate asset management company that would exclusively look at distressed deals in India,” said the first person cited above. “While most of the fund will be raised from global investors, SBI and Carlyle would put in an initial capital of ₹1,000 crore each.”
This would be Carlyle’s first fund focused on India’s distressed and special situations market.
In May 2018, Mint reported that Carlyle was looking at investment opportunities in India’s distressed assets space. “The distressed asset fund will also be the first for SBI, as it looks to capitalize on the distressed asset opportunities in India. The proposed joint venture partnership may, at a later stage, seek participation from other lenders in the identified assets,” said the second person mentioned above.
“The fund would primarily evaluate SBI’s stressed assets, but will be open to investing in any stressed case where turnaround is possible,” he said.
The partnership will seek to tap the potential business opportunity offered by the growing pile of stressed corporate loans of scheduled commercial banks in India, which according to the Reserve Bank of India’s biannual Financial Stability Report in December is expected to increase to 9.9% as a percentage of total loans by September 2020 from 9.3% in September 2019. Carlyle declined to comment, while SBI did not respond to emailed queries.
Many global private equity funds have begun investing in India’s stressed assets space after the Insolvency and Bankruptcy Code became law in May 2016. Last August, Kotak Special Situations Fund, which was launched in February 2019, reached its final close with total commitments of $1 billion ( ₹7,000 crore) from investors. The fund, managed by Kotak Investment Advisors, was anchored by a $500 million commitment from sovereign wealth fund Abu Dhabi Investment Authority.
In May 2019, Mumbai-based distressed assets investor Eight Capital Management and London- and New York-based emerging markets hedge fund Emso Asset Management, acquired Ambit Capital’s 47.5% stake in Ambit Flowers Asset Reconstruction Co. The firm, now known as JC Flowers Asset Reconstruction Co., has New York-based PE firm JC Flowers as the largest shareholder with a 47.5% stake. In January 2019, Edelweiss Financial Services Ltd closed its distressed assets focused fund EISAF II, with a corpus of $1.3 billion.