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April 24, 2024

Private Credit Surges as India Inc Seeks Funding for New Ventures, PwC Reports

Private Credit Surges as India Inc Seeks Funding for New Ventures, PwC Reports

Private credit is swiftly becoming the go-to financing option for projects in India, as highlighted by top officials at PwC India. Entrepreneurs are increasingly turning to short-term debt to fill the funding gap caused by the disparity in pricing for equity dilution, according to PwC.

While new private equity (PE) investments have seen a decline over the past two years, there has been a notable increase in public market exits by PEs during the same period. Many companies are expected to approach capital markets in the near future to provide liquidity to PE fund investors.

Bhavin Shah, Partner & Leader of Private Equity and Deals at PwC India, noted, “We have observed a surge in demand for private credit. Several large credit funds are now investing billions of dollars in Indian companies, spanning both stressed and performing credit spaces.”

Private credit, offered by PE firms, typically comes with slightly higher interest rates compared to syndicated loans. Additionally, these firms provide valuable assistance to entrepreneurs by leveraging their global experience in managing companies.

Tax uncertainty remains a significant concern for PEs investing in India. Shah remarked, “Despite efforts by the Centre to bring more clarity to the Indian tax system, many PE funds are still facing income-tax notices on settled issues.”

Eric Janson, Global Head of Private Equity at PwC, expressed optimism, stating, “This will be India’s decade, and PE investors from around the world are planning substantial investments in the country.”

According to PwC India, 2021 witnessed the highest investments with significant private funding flowing into the Indian ecosystem, leading to record exits for early investors. Last year also saw record exits through public market sales, marking a sharp increase from 35% in 2022 to 51% in 2023 in terms of deal volumes.

The significant exits of over $20 million in calendar years 2022 and 2023 were largely driven by public market and strategic sales. On average, global PE funds have an investment holding period of 6-7 years, generating returns of 3.5x–4.5x on their original investment during these years.

India’s growing attractiveness as an investment destination coupled with the availability of private credit presents a promising landscape for both local and global investors looking to capitalize on the country’s economic potential. With continued efforts to address tax uncertainties, the stage seems set for sustained investment growth in India Inc.

Jhumpa Lahiri

Jhumpa Lahiri

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