Kotak Special Situations Fund, which aims to invest in distressed assets, has reached its final close with total commitments of $1 billion ( ₹7,000 crore) from investors , a top executive said.

The fund, launched in February 2019, is anchored by a $500 million commitment from sovereign wealth fund Abu Dhabi Investment Authority (ADIA). The fund will be managed by Kotak Investment Advisors Ltd.

Other investors are sovereign wealth funds and one very large family foundation based out of India, Srini Sriniwasan, managing director and chief executive officer of Kotak Investment Advisors Ltd said in a phone interview. The capital, he said, could be deployed at any point over the next four years while the fund life will be about ten years.

“This is a sector-agnostic fund that addresses the stressed assets problem in the country. Right now, the stressed asset opportunity can be divided into two parts—one is for those assets that are going through the NCLT (National Company Law Tribunal) process and the others are those companies, which under the new RBI’s (Reserve Bank of India) dispensation, allow for a potential one-time settlement with their lenders to avoid the NCLT process. We are happy to finance both these opportunities," said Sriniwasan.

“The average ticket size could be anywhere between ₹350-700 crore for a single investment as we don’t want to have a very high concentration of a single stressed asset. But in terms of our actual ability to do a transaction, we can do much larger deals of more than ₹1,200-1,500 crore each, because our investors have given us capital with the expectation that we will be able to show them additional co-investment opportunities so they can put more capital to work. In that sense, we would be interested in any transaction that is between ₹350-1,500 crore?," he added.

With the final close of its special situations fund, Kotak joins other investors that have been tapping the distressed debt opportunity in India, which has the world’s worst non-performing loan ratio.

The country’s banking system saw its bad loans peak at 11.5% in March 2018 and then decline to 9.3% in March this year.

The Reserve Bank of India expects gross non-performing assets to decline further to 9% by March next year, as capital infusions from the government help public sector banks, while private sector banks tap markets to raise capital.

“The Kotak Special Situations Fund has been closed at an opportune time for us. We have a flexible investment mandate enabling us to provide much needed capital to address the short-term financial dislocation in the market as well as long-term capital to address the NPL (non-performing loan) issue," said Sriniwasan.

In January, Edelweiss Financial Services Ltd closed its distressed assets focused fund EISAF II, with a corpus of $1.3 billion. AION Capital, a joint venture between US-headquartered global private equity fund Apollo Global and domestic alternative assets manager ICICI Venture, is on the road to raise its second fund, targeting a corpus of over $1 billion.

Aditya Birla Capital Ltd, the financial services arm of Aditya Birla Group, has tied up with alternative assets manager Varde Partners to invest in distressed assets in India.

Other investors active in the space include Piramal Enterprises Ltd which has set up a distressed asset investment platform with Bain Capital Credit, in order to invest $1 billion in stressed assets, Hong Kong-based SSG Capital Management and new entrants such as Cerberus Capital Management Lp.

“In addition to the opportunities that arise out of the IBC (Insolvency and Bankruptcy Code) process, the fund also has the flexibility to provide structured credit solutions in the current environment where capital availability is scarce," said Sriniwasan.

“That may be a short-term investment opportunity for companies that are facing liquidity issues, and we have the flexibility to participate in such opportunities as well," he added.

Kotak Investment Advisors is a wholly owned subsidiary of Kotak Mahindra Bank Ltd and was set up in 2005 with its first private equity fund.

So far, the alternate assets business has raised $3.8 billion across different asset classes including private equity funds, real estate funds, infrastructure funds, the special situations credit fund and listed equities.

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