Industry leaders gathered this week at the PEI India Forum 2011 where they were afforded a scenic view of the Arabian Sea from the landmark Taj Land’s End Hotel in Mumbai.
But the calm waters of the sea stood in stark contrast against some of the topics discussed at this year’s forum. One recurring talking point was the turmoil that has descended upon the global financial markets.
Juan Delgado Moreira, head of Asia and Europe at Hamilton Lane, and Sanjay Patel who heads the international private equity business of Apollo Global Management, both painted a dark outlook for the European economy, with Moreira comparing the deficit accrued by his home country of Spain to that of India’s and Patel pointing to the market capitalisation of computer company Apple, which had outgrown the entire market capitalisation of Europe’s banks.
In this period of time being a credit investor is as interesting and valuable as being an equity investor.
But the pair also noted that despite the dismal economic conditions, there were also investment opportunities to be found, especially in Asia.
“A year ago financing was available, it felt like fundamentals were gaining strength… a year later banks either have to shrink or sell their assets,” said Apollo’s Patel.
He noted that the desire for greater liquidity could set about the growth of special situations investments and distressed asset purchases as traditional banking institutions began a bid for greater mobility.
“There’s going to be a massive sale of assets out of the banking system,” Patel said. “As a result we see a huge opportunity for distressed [investments] in Europe coming up.”
Patel noted that in India, the propensity for many family owned businesses to take on debt formerly provided by banks, which have begun to pare back on lending, also pointed to a future demand for credit and debt offerings.
“In this period of time being a credit investor is as interesting and valuable as being an equity investor,” Patel said, referring to his firm’s strategy of both providing debt and equity.
Hamilton Lane’s Delgado-Moreira agreed with that sentiment.
“When you are trying to invest for growth and valuations are so high, sometimes you might actually get a better implied valuation by going with a highly priced mezzanine type of structure,” Delgado-Moreira said.
Moreira said his firm was considering backing managers who might focus on providing credit in Asia.
“I think in Asia, distressed [investment] is less apparent,” Delgado-Moreira said. “But being flexible in Asia in using credit is something we agree with.”
A number of traditional private equity groups in India have launched credit strategies.
Most recently, CX Partners revealed plans for a special situation fund with “a credit orientation” while earlier this year, Goldman Sachs, Ashmore Group and Everstone Capital Management jointly formed Indostar Capital Finance to cater to the credit needs of large Indian businesses.