Fund focus: Edelweiss scales up for India distress

As GPs line up for a slice of India's booming distressed asset market, veteran investor Edelweiss Alternative Asset Advisors is determined to make its presence felt. With its latest fund, the firm believes it has the heft to leverage its years of experience into indisputable market leadership.

At INR92 billion ($1.3 billion), Edelweiss India Stressed Asset Fund II (EISAF II) represents a major upgrade on its predecessor, which closed in 2010 at $77 million. The larger size fund will allow Edelweiss to do bigger deals, but more importantly, the firm has implemented a fundamental shift in its investment approach to incorporate a side of the distress market that it previously neglected.

“In the last fund we didn’t do any debt buyouts from banks; we only provided capital to companies that they could use to restructure their balance sheets,” says Venkat Ramaswamy, an executive director at Edelweiss Financial Services. “This vehicle allows us to do direct debt buyouts as well.”

Prior to the final close, 50% of the corpus had already been committed to companies including Ballarpur Paper and Essar Steel, investments that concluded in 2017 and 2018, respectively. In both cases, Edelweiss, in partnership with its asset reconstruction unit Edelweiss ARC, bought over INR10 billion in loans held by the companies’ creditors.

This type of investment is expected to play a leading role in EISAF II’s strategy, with the firm’s previous focus on equity investments taking a secondary position. However, Edelweiss remains open to either approach depending on the situation.

“Either we are buying an existing loan to become a creditor in the company, or we are providing new capital to a company that is having trouble,” says Ramaswamy. “These are EBITDA-positive companies that are not yet NPLs, but the balance sheet does need some work. We provide that capital and give the company a chance to restructure and get back to growth mode.” 

Ramaswamy considers the success of Edelweiss ARC, which currently has over $6 billion in assets under management and received a major commitment from Caisse de dépôt et placement du Québec in 2016, to be the key factor in attracting investors to support the new strategy and expanded corpus.

For these investors, Edelweiss presents an opportunity to access a market where activity has accelerated in recent years. The firm has the local expertise that its overseas peers lack, along with an operational edge over its domestic competitors and experience with NPLs that few private investors can touch.

“We are one of the few firms in India that has an operating turnaround capacity in our team, which is an important differentiator,” says Ramaswamy. “But we are not a buyout firm – we will very rarely choose to own and run companies. Our primary role is to be a credit investor.”   

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• Topics
• South Asia
• Credit/Special Situations
• Fundraising
• GPs
• India
• Edelwiess Alternative Asset Advisors
• Distress