Varde Partners to commit $1 billion to stressed assets in India

PE funds and venture capital companies have been active in the Indian market for quite some time now. That is hardly surprising considering that India has a robust start-up ecosystem. Now it is the turn of stressed asset funds to enter India in an aggressive manner. The latest in the line is the US based alternative investment firm Varde Partners, which is one of the leading distressed fund investors in the world .Varde Partners now plans to invest as much as $1 billion to grow its portfolio in India. This is part of their broader strategy to tap the huge potential opportunities in the credit market, especially for stressed assets.

It is not that Varde is not active in India. They already have a sizable India portfolio and the shift is now about being more aggressive on India. Varde wants to split the $1 billion across about 6-8 different transactions so that they are able to commit reasonable value to each of their potential investments. Varde would be looking at an average ticket size in the range of $100 million to $200 million on an average. However, its approach will be predominantly sector agnostic and the investment in stressed assets will purely be on the merits of the case rather than on any specific sector preferences.

However, when we talk of stressed assets in India, the focus would typically be on sectors like real estate, infrastructure, industrials etc. These have had the maximum stress of bank loans and have been pushed to the verge of bankruptcy, unable to service the debt. That is where stressed asset funds like Varde enter in an take over such assets at fairly deep discounts. However, the upside for the banks in this arrangement is that if the business actually turns around and is able to create substantial value, these banks and other lenders are in a much better position to realize higher value on their outstanding loans.

Some of the recent deals of Varde Partners have been quite sizable. For instance, Varde Partners recently acquired a 15% stake In Reliance Power Ltd for Rs933 crore. Reliance Power is part of the beleaguered Anil Ambani ADAG group. The other big investment done by Varde Partners is also in the same business group. It had infused nearly Rs550 crore into Reliance Infrastructure Ltd, again part of the Anil Ambani ADAG group. Varde Partners had identified both these companies as having solid potential despite being part of a group that was under a lot of financial stress in the last few years. It invested in RINFRA last year.

Varde has already deployed over $3 billion across 20 different transactions in India in the last 4 years. The investment of $1 billion this year is in addition to these investments in stressed assets that are already made by Varde Partners. Varde was founded in the year 1993 and has since invested over $90 billion across regions like North America, Europe and the Asia Pacific. In the Asian sub-continent, India remains one of the prominent markets for Varde and it sees the potential for stressed asset investing increasing in the coming months as businesses go through stress on account of higher inflation and rising cost of funds.

To give a quick picture, India alone accounts for nearly 40% of the total investment portfolio of Varde Partners in the Asia Pacific market, giving a picture of how critical and central India is to their plans. Varde Partners has a strategic partnership with Aditya Birla Capital to leverage its existing asset reconstruction company (ARC) arm. Some of the recent transactions that Varde concluded through this route include transactions with GMR Airports and GMR Infrastructure as well as the deal to buy out Punjab National Bank’s debt exposure to the KSK Mahanadi Power project.

In terms of style of investing, the focus has largely been special situations investing in the early stages while in the recent past, Varde Partners has focused more on investing in stressed credit assets. It plans to put a third of its focus on stressed credit and the bulk of the 70% focus on special situations investing. It would be pertinent to note that back in December 2019, Varde Partners was part of the clutch of investors that had led the biggest OTS (one-time settlement) deal worth $922 million for the distressed power company; Rattan India Power Ltd. For Varde remains one of the most promising markets for special situations and credit and it may have just about scratched the surface.