Singapore’s state-run investment firm Temasek Holdings Pte. Ltd is open to investing in distressed assets in India either through an asset reconstruction firm or directly, a senior executive said.
“We are an equity-only investor. So, if there is a business that could be a non-performing asset (NPA) hypothetically, which is outsourced by a bank to an asset reconstruction (ARC) and that needed an equity infusion, we would look at it just as any other investment opportunity,” said Ravi Lambah, co-head, India and head for telecom, media and technology at Temasek International Pte. Ltd.
“Similarly, we are not averse to taking control of a company where we think the investment thesis works,” Lambah added.
He added Temasek had no firm plans to make such investments so far.
A number of global investors have evinced interest in stressed asset investments in India as the country’s lenders try to clean up their balance sheets.
Bad loans in India’s banking sector rose to Rs.5.8 trillion as of March 2016 after the Reserve Bank of India (RBI) conducted an asset quality review of the sector and persuaded banks to classify visibly stressed assets as non-performing assets, or NPAs, and set aside more money to cover the risk of default.
RBI is now encouraging banks to resolve these stressed assets either internally or through sales to asset reconstruction companies (ARC).
If there are opportunities in the future to pick up a stake in an ARC, Temasek will look at those, said Promeet Ghosh, managing director, India at Temasek Holdings Advisors India Pvt. Ltd.
“There are also funds who buy out distressed assets and we may look at them at that time. Whether they will be interesting enough for us in the Indian context, we cannot say at this point in time,” Ghosh added.
Over the last five years, Temasek has deployed nearly a billion dollar every year in India. Last year, it did deals across the pharmaceuticals, consumer products, agri-commodities and digital commerce sectors.
“In India, we had the most active year so far in the last fiscal, and we are looking at a lot of things and continue to be focused on India. Our investment has gone up from 4% of the total portfolio size to 5% this year; and the portfolio is quite resilient, considering all the upheaval in the world,” Lambah added.
“They were heavily (focused) on direct investing through the public markets last year rather than doing private market deals. With valuations of public market companies running up substantially, it does not make sense to invest at this point of time,” said an investment banker who works with the fund and did not want to be identified.
According to the fund’s latest disclosures, Temasek had a net portfolio value of S$242 billion as of 31 March. Its one-year return to shareholders was at -9% during the year even though the 10-year return stands at 6%. Globally, Temasek undertook S$30 billion of new investments during the year ended 31 March, while exiting nearly S$28 billion in investments.
Temasek has also dabbled in the consumer Internet segment.
In January, Temasek led a Rs.950 crore round of investment, along with Warburg Pincus, in online auto classifieds company MXC Solutions Pvt. Ltd that operates Cartrade.com.
“Consumer Internet space we like a lot. Offline to online penetration has just started and it’s a long way to go. We are looking for stories that are profitable on a sustained basis which is very difficult and we are quite excited about these companies,” Lambah added.
Temasek has traditionally invested in banks and financial services, telecom and technology, healthcare and pharmaceuticals, packaged consumer goods, agri-businesses and retail.
“Large private equity funds are quite active these days and they are able to do more large-sized deals because such deals are more easily available now when compared with the past. Indian businesses are maturing and are more valuable, and deal cheque sizes are also going up significantly,” said Sanjeev Krishan, leader-transaction advisory services at PricewaterhouseCoopers India Pvt. Ltd.
“Distress assets is an opportunity that everyone has looked at. People are looking at good assets that they can turn around operationally or an opportunity where one good asset can be carved out from the balance sheet of a leveraged corporate,” Krishan added.