10,142.15113.05
Stock Analysis, IPO, Mutual Funds, Bonds & More

Deutsche Bank boosts loans to cash-strapped tycoons in India

The NBFC crisis is creating new prospects for Deutsche Bank. Goldman Sach has been another beneficiary.

Bloomberg|
Last Updated: Feb 20, 2020, 07.03 PM IST
0Comments
Shutterstock.com
shutterstock_1102551134

Goldman Sachs Group Inc. and Apollo Global Management Inc. are among the other global firms to have spotted similar opportunities in India’s bad-debt woes.

By Suvashree Ghosh and Bijou George

India’s shadow banking crisis and revitalized bankruptcy process are creating new opportunities for Deutsche Bank AG as it steps up lending to cash-strapped tycoons and for purchases of distressed assets.

The German lender is seeing three times the volume of financing deals compared with 2018, when the shadow banking problems erupted, according to Rahul Chawla, the head of global credit trading at Deutsche Bank’s India unit. He declined to provide specific numbers, but said the bank has helped deploy “a couple of billion” euros to Indian structured finance deals.

For Deutsche Bank “this is a very, very high level of commitment,” Chawla said in an interview. He expects to grow the size of his book by another 30 per cent in the next two years.

Goldman Sachs Group Inc. and Apollo Global Management Inc. are among the other global firms to have spotted similar opportunities in India’s bad-debt woes, which have been magnified by the shadow banking crisis that erupted in 2018 with the default of a major infrastructure lender. As the non-bank finance firms have retreated, Indian companies have been struggling to obtain credit, curbing wider economic growth.

Asian distressed debt is one of the few growth areas at Deutsche Bank as Chief Executive Officer Christian Sewing pursues a deep restructuring that involves the loss of 18,000 jobs worldwide, or roughly a fifth of total headcount.

Chawla said one element of Deutsche Bank’s push in India is lending to business tycoons against their equity holdings. Before 2018, that business was dominated by short-term funding from shadow banks and mutual funds, which have since retreated.

“Earlier, borrowers in India were demanding their terms on everything from the size of the loan to pricing, and we were just one in the beauty parade,” said Chawla. “The balance then tilted, with borrowers seeking loans at prices which reward the risks lenders are taking,” he added, noting that business owners are seeking more longer-term funding since the crisis.

Chawla declined to mention specific transactions. However, the Economic Times newspaper reported last month that Deutsche Bank loaned $200 million to the Mistry family against their stakes in Tata Sons, to ease the tight liquidity conditions at Cyrus Mistry’s Shapoorji Pallonji Group.

As well as loans to company founders, Deutsche Bank India offers credit to commercial real estate, private equity firms and for one-time debt settlements by delinquent companies. The lender is also active in trading and providing funds for distressed debt purchases.

Bloomberg
358863121

Bad loans at Indian banks are expected to continue rising, Credit Suisse Group AG analyst Ashish Gupta wrote in a note this week. They increased in the latter part of 2019, partly as a result of the spreading shadow bank crisis.

A court ruling last year should help Deutsche Bank’s credit trading business in India, because it will likely stimulate more overseas interest by reassuring investors that they won’t lose priority in terms of repayment, Chawla said.

India has seen slow progress since creating a bankruptcy court in 2016 to get to grips with the bad loan crisis. Only 17 per cent of cases admitted to the court had produced a resolution plan as of December, according to data published by the insolvency board.

However, some of the logjam was broken with the Supreme Court decision in November to clear the way for ArcelorMittal SA’s $5.9 billion takeover of Essar Steel India Ltd. The court allowed Arcelor to pay creditors and scrapped a bankruptcy appellate tribunal’s order that gave secured and unsecured lenders equal rights over the proceeds.

After the judgment “people now know we can take a call on the underlying credit. I don’t have to worry about where I stay in the structure,” Chawla said.

Deutsche Bank holds 28.3 billion rupees ($396 million) of Essar Steel loans, purchased from IDBI Bank Ltd. and Bank of Baroda, according to filings made by the steel firm’s court appointed bankruptcy administrator.

Among its other distressed asset plans, Deutsche Bank has been seeking to purchase bad loans extended to Jindal India Thermal, GVK’s power plant in Punjab, and to Coastal Energen, people familiar with the matter have said.

However, a rule that requires foreigners to go through a so-called asset reconstruction company for out-of-court bankruptcies can increase the cost and timescale of such deals, Chawla said.

Chawla, who rejoined Deutsche Bank for a third stint in 2014, said he added three members to his team last year, bringing the total to 11.

Also Read

Deutsche Bank not keen on DHFL buy

Former SAP India MD joins Deutsche Bank

Expect additional 35bps reverse repo rate cut by August: Deutsche Bank

Deutsche Bank-led group a step closer to Jindal India deal

Comments
Add Your Comments
Commenting feature is disabled in your country/region.

Other useful Links


Copyright © 2020 Bennett, Coleman & Co. Ltd. All rights reserved. For reprint rights: Times Syndication Service