$1-bn corpus: Kotak Special Situations Fund invests $502 mn so far

Kotak Special Situations Fund (KSSF), one of the largest special situation, credit and distressed asset funds, has invested over half of its $1-billion initial corpus in eight companies, and will scout to raise a similar amount from investors later this year or early next year, a top company official has said.

Kotak Investment Advisors, a part of Kotak Mahindra Bank, February 2019 launched KSSF as an AIF special situations fund with a $1-billion corpus. It received 50 per cent maiden money from the UAE sovereign wealth fund Abu Dhabi Investment Authority ($500 million), 25 per cent ($250 million) from the Singaporean sovereign wealth fund GIC, and the rest between Premji Invest and Kotak Group.

The fund hopes to complete deals worth 65 per cent ($650 million) of its corpus by September.

Typically, funds like KSSF shore up capital when they use up 75 per cent of the existing capital and are sector-and instrument-agnostic when it comes to resolving stressed assets issues.

Either it picks up assets/stressed asset opportunity from the IBC/National Company Law Tribunal processes and others are those companies which look for one-time settlements with their lenders to avoid bankruptcy.

"We have so far deployed $502 million of our $1-billion fund in eight companies. The first investment of Rs 500 crore was made in January 2020 in Jindal Stainless (JSL). We hope to pick up more assets by investing another Rs 1,000 crore by September," KSSF Chief Executive Officer Eshwar Karra PTI.

KSSF is an arm of Kotak Investment Advisors.

"We'll look for the second round of fund-raising when we've deployed 75 per cent of the corpus.

"As and when we reached that, which I expect to happen by the year-end, we'll launch a road-show to raise a similar amount, though we've 2.5 years more to close the fund," he said.

Karra added that had it not been for the pandemic-induced lockdowns, many more deals would have been completed. "In fact, we have really worked well only in the March quarter."

Going forward, the firm's focus is consolidating the investments already made, "even as my 10-member team keeps on prospecting new deals", Karra said.

On the eight investments already made, Karra said they are into six sectors and broadly fall under five investment categories -- special situation ($104 million or 21 per cent of the invested funds), stressed assets ($195 million or 39 per cent), pre-pack or one-time settlements ($156 or 31 per cent), insolvency ($47 million or 9 per cent), and liquidation (nil so far).

Under the special situation category KSSF's first investment was of $69 million in Nuvoco, the cement business arm of the Nirma Group, in June last and this was mostly in equities, though our main investments are into special debt.

The second investment under the special situation scheme was the $35-million investment in the nutraceutical firm Omniactive, he said.

Under the stressed assets category, "we've so far invested $195 million in three companies", he added.

The largest is the $73 million Jindal Stainless Steel (debt though specially issued NCDs), followed by AGS Transact ($49 million) and $73 million into realty group Prestige, in which we own over 70 per cent.

Under the pre-pack or one-time settlement, "we've invested $156 million — $57 million in chemical firm DCW; and $99 million in HKR Roadways, a toll road project in Andhra in which we now own 74 per cent equity after the one-time settlement with the lenders", he said.

Karra added that HKR had over Rs 1,600 crore of debt and they entered into an one-time settlement with the lenders for Rs 750 crore, of which "we paid Rs 715 crore".

Under the insolvency process we have picked up the Saket, south Delhi-based commercial asset Prius for $47 million, he said.

Overall, over 80 per cent of our investments are debt and the rest equity, he added.

Karra said they have an exit time of two-three years, and a lock-in of two years for any investment. Exit could happen through sell out or IPOs and have a commitment to return over 20 per cent to the investors, he said.