Interview with: Amit Goenka, Managing Director and Chief Executive & Devashish Gupta, Head-Investments, Essel Finance
About Essel Finance
Essel Finance is a diversified financial services firm that manages an Indian private debt fund, the India Asset Growth Fund (IAGF), and is setting up an offshore fund, the Essel Credit Opportunities Growth Fund (ECOG), to be regulated in Singapore. Both funds will invest pari-passu into primarily Indian Real Estate Assets by prime developers using senior, secured, fixed income instruments. Both funds have been seeded by the family office of the US$ 7 billion Essel Group, an Indian conglomerate with businesses in media (Zee TV, DNA, Ten Sports), education (Zee Learning), entertainment (Fun Cinemas, Playwin), infrastructure development (Essel Infra), packaging (Essel Propack), finance & technology-enabled services (DishTV).
Nicosia, Cyprus, September 27, 2013
“Unique market conditions in Indian real estate are allowing us to generate high equity-like returns with a highly-secured fixed income framework,” according to Amit Goenka, Managing Director and Chief Executive & Devashish Gupta, Head-Investments, Essel Finance. However, it is essential that investors “go with the right instrument and the right developer,” they point out.
Essel Finance will be present at the marcus evans Middle East Investments Summit 2013 in the UAE and the Elite Summit 2013 in Switzerland. Ahead of these events, Goenka and Gupta discuss the value of Indian real estate backed bonds in an investment portfolio.
What does Essel Finance have to offer to investors?
Amit Goenka: We have a unique opportunity for international investors to generate equity-like returns with the safety and security of a debt product in a top emerging market. Our investment strategy is primarily focused on investing in highly secured, rated and listed non convertible bonds backed by real assets in India, such as public housing units and urban infrastructure, besides opportunistically investing in other unlisted and/or mezzanine instruments to boost returns. The Essel Credit Opportunities Growth (ECOG) Fund provides fixed-yield periodic returns to its investors, a best-in-class regulatory framework, hedging and pooling of funds in a tax-friendly jurisdiction. We are well poised to exploit systemic arbitrage to provide superior risk-adjusted returns to our investors.
Why should investors and pension funds in Europe and the Middle East consider investing in your fund? What specific opportunities does the fund aim to tap into?
Devashish Gupta: India is a growing country. An estimated 140 million people are expected to move to cities by 2020, which would lead to a shortage of 30 million housing units. There is already a shortage of one million housing units in the top six cities. The need for infrastructure/real estate development will be a key driver of credit demand growth. India’s mortgage to GDP ratio is at ten per cent. With our expertise in this market, we are well poised to take advantage of this market opportunity.
Amit Goenka: Recent market trends have also led to a temporary liquidity squeeze among developers, as the banking system has slowed lending to the real estate sector and private equity funds that invested heavily into real estate in 2005-2010 look for exits. The economic sluggishness in the last two to three years, rising inflation and the subsequent high interest rate environment has also led to low credit availability and erosion of savings among potential home-buyers. This has caused a cashflow mismatch for many residential real estate developers. This situation makes a strong case for lending to prime projects by reputed developers that already have an excellent consumer base. We prefer developments that are at an advanced stage, two to three years to handover and exit, but need some bridge financing. Such developments are in prime locations and are fast-selling even in tepid market conditions.
What are the risks of investing in this space? What should investors be careful of?
Devashish Gupta: The primary challenge is selecting the right project and actively managing the conversion of assets to cash. The way we mitigate risk associated with such investments is by having a large team on the ground in four cities of India, actively working with each investment. Their job is to monitor cash flows and ensure that the developer is adhering to the timelines, business plan and deliverables of the project.
Amit Goenka: The risk of emerging markets currency volatility, including the Indian Rupee, can be well mitigated due to certainty in cash flow timing in ECOG’s investments.
The unlikely risk of default is very well managed by taking a loan to asset value of less than 50 per cent with additional guarantees in all our structured investments, effectively giving us quadruple security on our instruments. We can always quickly recover our investment and returns by liquidating assets at a deep discount.
Source: Marcus Evans