Private credit can offer leveraging capabilities to PE, VC funds, say panellists at IVCA Conclave

- Collaboration between private credit and PE, VC funds critical
- Private credit can offer exit to venture debt
- Alternative sector should come together to offer credit to MSMEs
- Private credit is a mainstream, resilient asset class today with several end users.

Private credit is a mainstream asset class today with a number of end users and it can provide significant leveraging capabilities to private equity and venture capital funds, panellists at the IVCA Conclave 2023 said.

“At some stage, there comes a time when companies have become profitable and have an assured market at their door step, but haven’t gotten into the big league where they need $100 million capital. That is where private credit becomes very effective. Collaboration between private equity, venture capital and venture credit is a wonderful thing. Private credit can provide an exit to venture credit, can provide leveraging strategies for PE and VC as companies grow larger,” Sabita Prakash, Managing Director, Asia Pacific, ADM Capital, said.

Speaking at a panel, Prakash pointed out that MSMEs are ignored in the credit system despite accounting for over 50 per cent of the country’s the economy. The average ticket sizes of individual funders go up due to consolidation and as a result, smaller enterprises find it hard to raise fund. She says players in the alternative sector should team up to fill this funding gap.

Kanchan Jain, Managing Director and Head of India Credit at Baring PE Asia said that private credit today is a mainstream asset class which has many end users. “A lot of the narrative over the last few years has been that there is inefficiency in the banking system in terms of flow of credit and that’s what gives rise to big private debt opportunity. We have moved completely away from that. From our learning from other markets where there is sufficient leverage in the system and banks are well penetrated, private credit is more than 50 per cent of the credit that the industry uses. It is a mainstream asset class, and we have exactly the same opportunities in India,” she said.

Jain outlined several use cases such as performing credit, growth capital, acquisition capital, specialty capital, distress capital, and mezzanine capital, and said while banks will continue to play a mainstream role, there is a more dynamic, bespoke structured requirement that private credit could play, which is a large opportunity.

“There are a whole lot of end users, because it is an asset-light sector and more and more dynamic corporates are looking to grow through various means other than just increasing the capacity. A lot of those end users are not easy to fund through your existing bank relationships, that’s where the private credit coming in. That entire gamut of end users is the potential for how big the private credit industry can grow or the gap that private credit industry can fill,” she said.

Jain further said private credit is a resilient asset class which is scalable and can provide significant amounts of liquidity premiums. “In a market like India, you have the potential to earn high-teens returns out of secured debt. There are also possibilities to earn additional upside-linked return, linked to the performance of the business,” she added.

Also read: Hindenburg effect: Gautam Adani's net worth slips to around $46 bn on massive slide in m-cap, stocks 

Also read: IT employee union NITES files complaint against Wipro with Labour Ministry