True North, with assets under management of over $3 billion, has raised capital from Indian ultra-high net worth individuals (UHNI) and family offices.
It will look to deploy the capital over the next five years and is targeting a 15-18% internal rate of return (IRR), Vishal Nevatia, founder and managing partner, True North and Kapil Singhal, managing partner at True North’s private credit unit. said The company expects to close the credit fund with around ₹1,300-1,400 crore of capital by December.
True North has so far raised six private equity funds and has looked at a second asset class to complement its private equity business over the past five years. It closed its sixth private equity fund at $600 million in 2020.
It has so far invested in more than 70 companies through its private equity unit, over the last 24 years across consumer, financial services, healthcare and technology sectors and has made around 50 exits, generating a cumulative return of around 23-24% IRR in local currency .
Venture capital, real estate, distressed assets and growth stage PE were the areas considered before deciding that credit would be the best natural extension for the company.
“We felt that credit would be very attractive and a big opportunity in India over the next 10-20 years. It went through an early period of stress and then came through — we think private credit is where private equity was 15 years ago,” said Nevatia.
Singhal joined True North in late 2021 to build the company’s credit team, which now has eight investment professionals and analysts.
Through its credit fund, True North will seek to bridge the supply-demand gap for mid-market companies and offer capital solutions for shorter holdings. The fund is likely to tap businesses that generate revenue around ₹300-400 crores and has a turnover of up to ₹1,500 crores.
The performance of a credit strategy is built on the structural inflexibility of the banks to carry out a certain type of transaction ie tenor extension, structured repayment schedules, home acquisition financing etc. Sometimes, it is also the banks inability to act quickly; other times it’s the practical limitations that banks have, ie financing asset-light businesses,” Singhal said. “For such transactions, we can offer agile and tailored solutions. Since it is expensive, it does not make sense for the borrowers to keep. this for a long time,” he added.
Nevatia added that the fund will only support profitable cash flow producing businesses.
These are likely to be businesses that can’t go to a bank for specific reasons, he said.
“They may need support for two to three years before they can go back to a suitable bank for refinancing. We can help them for two to three years – then they will also fit the bank’s assessment criteria,” Nevatia said.
Some of the deals could involve home acquisition financing, which is not allowed to be done by the banks. It could be financing a company that has gone through restructuring in the past, turned around and is profitable today, but it still needs a home in an efficient credit fund before it goes back to the banking system,” Singhal said.
Named “Performing Credit Regular Income Fund”, it has already supported eight companies. The fund fully exited one and partially exited another investment.
“The efficient credit strategy that we are targeting now will focus on 17-18% gross return and will deliver 13%-14% net return which is pre-tax, postage, postage, postal expenses,” Singhal said. in the joint interview.
Private credit is in high demand in India’s middle market due to limited supply from banks and non-bank financial companies. Certain sectors are off-limits for lending beyond a threshold limit, which exacerbates the need for private credit, according to executives.
Besides True North, companies like ASK Group, Edelweiss, BPEA Credit among others are targeting the private credit opportunity in the country.
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Updated: 27 Nov 2023, 18:30 IST