Exclusive: Avendus Group plans to launch new credit fund in FY25, thrice the size of previous fund

Avendus plans to channel investments from the fund in sectors such as pharma and healthcare, special chemicals, manufacturing, business to business, FMCG, warehousing, logistics, financial services, and auto comp.

Financial services firm Avendus Group is in the works to launch a third credit fund this fiscal year that will be twice or thrice the size of the previous fund, Nilesh Dhedhi, Managing Director and CEO, Avendus Finance, told Moneycontrol.

“We will launch a third credit fund this fiscal year. Typically, people try to reach 2 and a half or 3x of the last fund. I mean, that is typically how the market works,” said Dhedhi in an exclusive interview.

“So, I mean, if you ask me what the size could be, this is typically the size we would like to target because that's a market kind of dynamic. And for us, it should be in that range,” Dhedhi said.

Focus areas

Avendus plans to channel investments from the fund in sectors such as pharma and healthcare, specialty chemicals, manufacturing, business to business services, FMCG, warehousing, logistics, financial services, and auto comp, Dhedhi added.

Also read: Avendus to raise its 3rd late stage fund, targets Rs 3,000-cr corpus

The company's second credit fund of Rs 1,000 crore, which was closed in March 2023, will soon see 75 percent of deployment in the next couple of months, Dhedhi said.

“We closed the last fund in March 2023. And we have deployed around 55 percent and we have called for another 12 percent. So, we are 67 percent today. And then, we are looking at two, three more deals in the next one or two months so we should be crossing 75 to 80 percent by next month,” Dhedhi said.

Real estate not a focus area

Avendus is not looking at investments in real estate for now. “Real estate is not something which we've been focusing on and very core infrastructure segments like roads, powers and airports. Some of the ancillary services of infrastructure and real estate are fine but not the core projects,” Dhedhi said.

However, Avendus may look at investment opportunities in the real estate sector in the near future. “Real estate as a sector has been doing quite well over the last one and a half to two years. A lot of shake-ups have happened. Companies are becoming very big and their cash flows are very, very strong. And there is a huge demand, right? So, that has really helped in terms of compliance and some of the other things. In a few years time, we might look at the segment,” Dhedhi said.

On AIF market

Dhedhi said investor interest in the alternative investment fund (AIF) market has declined post the recent RBI rule changes.

Going forward, banks would be very cautious about putting new funds in AIFs, he said. Earlier banks were looking at investing some small portion in AIFs, it was always a small portion and never a part of the key treasury, he added.

In December 2023, the Reserve Bank of India (RBI) said regulated entities, such as banks, non-bank lenders and home financiers, cannot invest in AIFs that have directly or indirectly invested in companies that have borrowed money from the lenders.

However, in March 2024, RBI eased the December 2023 measures and said that the definition of downstream investments will exclude investments in equity shares of the debtor company of the lender. However, the rules will apply to all other investments, including investment in hybrid instruments.

Further, provisioning by lenders that have investments in AIFs will be required only to the extent of investment by the lender in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme, RBI said.

Also read: KKR revives process to exit Avendus Capital; onboards Nomura as advisor

Outlook on private credit market

Since it began its operations in 2010, Avendus Group has done around 120 plus deals disbursing around $1.6 billion from its own balance sheet. “In NBFC, we have been doing private credit kind of transactions only. It's a 100 percent wholesale lending structured finance NBFC. Over the last six or seven years, we would have done around 120 plus deals, and we would have disbursed more than half a billion dollars from our own balance sheet,” Dhedhi said.

Compared to the global private capital market, India’s market is relatively small but growing. “In the US, of 100 percent of the credit requirement, banks are only fulfilling 33 percent and the remaining 66-70 percent is done by the non-bank lending market, which is private credit majorly. In India, 80 percent of the total credit requirements are being met by the banks and only 20 percent is being met by the non-bank lenders but the market itself is growing at a very high rate,” Dhedhi said.