Canadian pension funds eye private debt space in India

Bombay : Canadian pension funds are seeking to exploit the private debt space in India, where a prolonged credit crunch is hampering companies’ ability to raise funds from traditional lending sources.

This includes Canada’s largest pension fund manager, the Canada Pension Plan Investment Board (CPPIB), which, according to a December 5 report from mint, plans to add private debt investments to its Indian portfolio. A senior adviser to CPPIB in India, Vikram Gandhi, had said that CPPIB would allocate capital to the private debt market in India and an announcement would be made shortly.

According to Gandhi, the CPPIB sees a big opportunity in the lending sector, where companies have a good asset base but face problems on the liability side, including troubled assets.

While CPPIB may create a $1 billion loan fund, another Canadian pension fund, the Ontario Teachers’ Pension Plan, is also considering creating a $500 million loan fund. dollars in the country, said two people familiar with the development, on condition of anonymity.

“These two pension funds are looking to start their funds in joint venture partnerships with local businesses,” said one of the people quoted above.

“Ontario Teachers will specifically focus on the performing credit segment and provide structured senior debt to performing and high-growth businesses,” the person said.

Ontario teachers did not respond to email inquiries, while the agency declined to comment further.

The establishment of credit platforms by pension funds comes at a time when credit disbursements are declining in India.

Overall loan growth in the country nearly halved to 6% in the September quarter from more than 11% a year earlier, according to a November 11 report, due to a sharp decline in disbursements. non-bank financial corporations and the slowdown in bank credit flows. by the brokerage Credit Suisse. Credit costs, however, remained high even with moderation in slippages as there was a delay in recoveries under the Insolvency and Bankruptcy Code, India’s bankruptcy law, according to the report. .

The slowdown in loan growth was reflected in corporate borrowing, with the flow of funds from banks and non-banks to the commercial sector plunging 88% to 0.9 trillion between the first fiscal half of 7.36 trillion a year ago, according to the Reserve Bank of India’s semi-annual monetary policy report.

“The credit crunch in the market is forcing some of the good companies, mostly in the mid-cap space, to borrow at yields well above those in stable markets. And that makes the performing credit space ripe for investment, because pension funds/sovereign wealth funds could lend at attractive yields to successful companies that now lack credit to finance their growth cycle,” said Shantanu Sahai, Executive Director and Head of Debt Finance and Capital Markets at loan from global investment bank Nomura.

“These funds are not averse to investing in large mid- to large-cap companies in sectors such as infrastructure, telecommunications, industrial and manufacturing companies, or midstream companies unlike the usual private equity firms which generally have tendency to focus on new era industries like healthcare. , financial services, technology or consumer space. And so, while companies in these sectors are still managing to raise capital from the usual sources, these are the companies in the old-age economy – industrials, telecoms; etc that are hungry for capital and this is where the value of some of these alternative credit providers starts to become much more pronounced compared to others,” he added.

CPPIB’s current exposure to India is approximately C$10.6 billion, with investments in public and private equity, real estate and infrastructure. Going forward, its allocation to India is only expected to increase as it wants to increase its exposure to emerging markets to a third of its total portfolio. Within emerging markets, China, India and Brazil are CPPIB’s top priorities.

Teachers’, one of the largest single-profession pension plans in Canada, was a latecomer to the country compared to its peers. In August, Mint announced that the fund was actively pursuing investment opportunities in green energy and airport space in India.

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