‘We will be 50 per cent invested by June 2021’

K.R.Srivats New Delhi | Updated on March 23, 2021

Managing risks while building portfolio is critical , says Kotak Special Situations Fund CEO Eshwar Karra

Kotak Special Situations Fund (KSSF) that runs the $1-billion Stressed Asset Fund has made three investments over ₹1,000 crore in less than two months, from picking up stakes in nutraceuticals company to doing an all-cash deal under the insolvency and bankruptcy code (IBC) by acquiring a real-estate company and investing in a chemical company. Businessline spoke to Eshwar Karra, CEO-Kotak Special Situations Fund, Kotak Investment Advisors Ltd, to understand his investing journey and his plans of picking up stakes in distressed assets, especially with the RBI’s Covid amnesty going away by month end. Excerpts:

How has the journey of KSSF been since inception?

It has been an interesting journey so far. We had raised the fund in February 2019 and had not anticipated the Covid situation, subsequent lockdowns etc. Despite everything, we have been able to invest a substantial part of the fund including doing a deal during the lockdown period. Doing business during this period has been a surreal experience.

What was the objective behind setting up KSSF? Going by the kind of transactions that are being put through, are they in alignment?

We raised the $1 billion fund with a flexible mandate to be able to target all kinds of opportunities in the distressed, special situations and credit space in India. We have now done transactions across all these strategies including controlled deals.

You have been doing deals/transactions at frenetic pace in recent weeks/months. Are you changing gear, given the tremendous opportunities for picking up stressed assets at cheap valuations in the market in post Covid-19 world?

It takes at least 6-12 months to consummate a transaction in this space. Most of the deals that you see us concluding are the ones that we have been working on for the past 9-12 months. Timelines have been stretched due to the pandemic. However, the month of March is a time of frenetic action in India due to the financial year-end and hence this trend. Deals usually have a tendency to bunch up in the month of March. A couple of them were scheduled to close last March.

How much of your fund size has been utilised so far? Do you have enough gun powder to do more deals in the coming days?

We have currently invested ~30 per cent of our $ 1 billion fund and are in advanced stages of closure for an additional 20 per cent to be deployed by June 2021. Post that we will still have 50 per cent of the fund left to be invested.

What is the aspiration for 2021 and how much has been realised till date?

We are hoping to be able to invest around 70-80 per cent of the fund in this year. Our first investment was made in February 2020 and the portfolio is seeing realisations in the form of debt servicing. Too early for us to look at exits given that we are now in investment mode. However, the companies that we have invested have had a V-shaped recovery and hopefully should continue this way. We are looking at many opportunities across sectors and with the RBI’s Covid amensty going away by month end; we are anticipating a lot more opportunities in the special situations segment. A lot of companies will need to correct their balance sheets and will need to re-tenure their existing loans. We are best positioned to address their needs, given the wide and flexible mandate that our LPs have given us.

On the sectoral front, you have done deals in diverse sectors. Any particular strategy on choosing the sector of investment?

We are sector agnostic and have invested in stainless steel, cement, pharmaceuticals, real estate and the chemicals space. We should be closing something in financial services and the infra space. We are constructing our portfolio with a right mix of industries to help us manage risks better. Managing risks while building your portfolio is very critical for us.

How do you rate the overall performance of KSSF so far? What is the rate of return (IRR) you are expecting from the fund? What type of returns investors (LP) expect from stressed funds?

It is still early days but our portfolio has been shaping up well and we are targeting returns of 20 per cent + from the fund. This is in line with the expectations of most funds in this sector.

Will you look at raising more funds/ capital for KSSF this year?

Currently, our focus is on deployment from the current $ one billion fund. We will decide on the next fund once we have invested 70-80 percent of the current fund.

How do you compare the performance of KSSF with other players in the market who too have SSFs under them?

Too early to comment on this. The market is large and we hope all funds do well. This will boost the India special situations story and more investors will commit money for this strategy.

Where do you see the next round of growth coming for KSSF?

The next round of growth will come from more active investments rather than passive ones. We see ourselves taking more operational and management participation in our investments and are building a team towards that strategy.

Published on March 23, 2021

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