Ravi and Vikram Chachra, brothers with backgrounds in distressed investing, plan to start a fund to restructure faltering Indian companies in anticipation that the outcome of the world’s biggest election this week will produce new leadership and bolster business confidence.
The fund at Eight Capital LLC, the Mumbai-based firm they founded in 2005, seeks to raise as much as $500 million and will focus on industrial and infrastructure companies, Chief Operations Officer Vikram Chachra said in a phone interview last week. Chachra said projects have been slowed for years by government corruption under Prime Minister Manmohan Singh. The firm supports likely winner Narendra Modi because his business-friendly policies would help rejuvenate development, he said.
“We are in the perfect time to do distressed,” Chachra said. “The government did not play their part. If somebody put up a power plant, the government didn’t get them the coal. If you bid on a toll road, the government did not acquire the land. We like to buy when there’s blood on the streets. There’s blood on the streets now, and then a recovery. Perfect timing.”
Chachra estimates there are about $100 billion worth of distressed corporate loans in India. The fund will invest in debt and equity and aims to buy and revamp companies in sectors including cement, automotive components, construction, mining equipment, telecommunications towers, domestic hotel chains and regional retail chains.
The Eight Capital India Recovery Fund, which may raise $100 million by September, will target a net internal rate of return of 25 percent over its three-year investment period, Chachra said. The firm expects a cyclical recovery as it exits investments after multiple years.
About 815 million voters, roughly the populations of the U.S. and European Union combined, were eligible to cast ballots in nine rounds of voting over five weeks to pick 543 lawmakers. Results will be announced May 16 in the nation of 1.2 billion people, where about two-thirds live on $2 per day, according to World Bank estimates.
Indian stocks advanced to all-time highs and the rupee strengthened after exit polls showed the main opposition alliance led by Modi probably won the most seats in national parliamentary elections.
Eight Capital started its first fund, a similar strategy that had a peak of about $250 million in assets and co-investments, in 2005 and returned most of the capital to investors by the end of 2011 after opportunities in distressed investments diminished, Chachra said. The firm also has an office in Westport, Connecticut.
“We bought bad loans between 2005 and 2008 and then when there was a great financial crisis, a lot of Indian dollar bonds were being dumped in the market, so we backed up the truck and bought at that time,” he said. “Now there’s a $100 billion opportunity coming, and we’re going to back up the truck and start buying.”
Before starting Eight Capital, Ravi, 48, the firm’s chief investment officer, worked at JPMorgan Chase & Co., Deutsche Bank AG and J. Goldman & Co., according to a presentation for the new fund, a copy of which was obtained by Bloomberg News. Vikram, 45, previously worked at Banco Santander SA, Hewlett-Packard Co. and Snapfish.com.