Stressed asset investment opportunities in next five years emerge from unresolved existing stocks NPAThe fresh credit default and special situation opportunities could be around USD 25 billion, said consultancy EY’s report.
“India offers a huge structural opportunity for private debt investors. post a flood of bad debtTraditional lenders have shied away from risk, while NBFCs are recovering from a liquidity crisis that engulfed them in 2018. This has left a huge void for private loan providers to hold,” said its partner Dinkar Venkatasubramaniam.
The EY report defined private loan performance as providing an internal rate of return between 12–18 percent per year, and estimated overall Borrow Opportunity to be between US$ 39-89 billion over the next five years depending on the rate of credit growth.
In the stressed asset lending space, which private investors can look for with higher returns and strategic investors, the returns could go up to 18-24 per cent, it said.
India will continue to offer opportunities in the 12-24 per cent IRR range as multiple dynamics are at play, suggesting that stablecoins and higher economic growth will improve investor confidence.
On the other hand, at the bottom of the interest rate cycle, fears of inflation on the back of the commodity cycle and recent concerns about delays in enforcing creditor rights will push rates further up, the report said.
It also highlighted challenges to the private debt market, including delays in formal bankruptcy proceedings, delays in resolutions outside the National Company Law Tribunal framework, corporate governance issues such as cash leakage, easier monetary policy environment, direct access to alternative investment funds in the secondary market. includes the inability to enter. And there is no recourse to SARFAESI provisions for such investors.
There are many deals that can happen under the personal credit umbrella, including buying a stressed business under bankruptcy laws or otherwise, priority debt financing, secondary transactions, performance credit, one-time settlements and opportunistic or special status transactions. said.
Investors can enter either through the offshore route, which would include coming in the form of foreign direct investment and foreign portfolio investment, or, from the onshore front which would involve setting up of an AIF, NBFC or asset reconstruction company, it said.