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Kotak closes India distressed asset fund at $1b

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The Kotak Special Situations Fund, which is sponsored by an alternative assets arm of Kotak Mahindra Group focused on Indian non-performing loans (NPLs), has reached a final close of $1 billion.

Kotak Investment Advisors (KIA) launched the vehicle in February with an anchor commitment of $500 million from the Abu Dhabi Investment Authority (ADIA). Other LPs include sovereign wealth funds and a large Indian family office, KIA Managing Director and CEO Srini Sriniwasan told Livemint. Eshwar Korra, former CEO of Kotak-sponsored asset reconstruction unit Phoenix ARC, will lead the investment team.

The fund will invest in a range of NPL opportunities, including stressed and distressed assets, across a range of sectors, leveraging long-term capital appreciation and returns from interest, dividend, capital gains, or sharing in profits. In a release Kotak said the firm already has a pipeline of structured credit transactions, and is also pursuing investment opportunities in companies emerging from the National Company Law Tribunal (NCLT) introduced in India's bankruptcy reforms of 2017.

Indian NPLs have generated increasing investor interest in recent years as the growing level of bad loans in the banking system has limited financial institutions' ability to provide credit and threatened to restrict economic growth. The new bankruptcy code is seen as a major step toward lowering the protections for borrowers that have historically made asset recovery difficult.

ADIA joins a number of foreign investors that have entered the market via partnerships with local specialists, such as Värde Partners, Apollo Global Management, Brookfield Asset Management, and J.C. Flowers. Kotak also has a similar joint venture with the Canada Pension Plan Investment Board (CPPIB), which announced in 2016 that it would partner with the group to invest up to $525 million in distressed assets in India.

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