What is the potential for debt/credit offerings in India?
We have been doing debt in India for many years. Since the mid-‘80s we have taken equity and debt positions in India. In our role as a fund of funds investor, the Indian debt market was not as open in terms of opportunities.
If you look at the debt side of the Indian market in terms of PE funds and debts funds, there were hardly any opportunities. You had asset reconstruction companies which exist, but that’s pretty much what we had in terms of offerings. Now the offerings are expanding as the debt market is building up so we are seeing there are corporate bond offerings, mezzanine funds – there’s one mezzanine fund in India today but we will see more going forward. The thing to note is that the offerings and markets have deepened; as a result we see more opportunities coming.
On the other hand, the mezzanine side of the story is building up also because the straight equity side of the story has not played out as well as people had thought it would. Straight equities had a lot of problems on the PE side, and returns did not come through as people thought they would come through.
Some people say it’s difficult to do mezzanine in India and also China because the structure is not particularly well understood. Would you agree?
It is true that mezzanine is not well understood, but Indian managers are so nimble and so quick, an Indian manager can quickly get round an idea and fit it into their model. For example in the last six to eight months, we’ve seen at least five or six offerings that have come to the market, and several other people I know are planning mezzanine offerings. So I think this is a market that’s coming up in a big way and it’s becoming a stronger market.
What is your view on long term sustainability for debt offerings in India, where traditionally banks and specialised companies have been providing credit?
I think in the longer term the debt market will deepen as it has in the rest of the world, and the deeper definitions of debt will come through. People will be able to say ‘if I get debt from a mezzanine fund, I can expect this involvement from the private equity guy’, it’s not the same as getting a straight bank loan. The mindset of the promoters needs to change and evolve, and they need to recognise it is a different type of debt. And then they can make their choice as to what is the kind of debt they are looking for.