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Equity Bull Market, Elections, Push India Private Credit Deal Volumes Down for H124

India’s equity bull market run was the primary cause of the drop in the country’s private credit deal volume in the first half of calendar year 2024, multiple sources told Reorg. India deal volume fell 4.9% year on year to $4.45 billion-equivalent across 57 deals, according to Reorg data.

Reorg’s India Private Credit Deals & Rankings for first half 2024 is HERE.

The same sources also noted that in the run-up to the country’s general elections this year, capex announcements remained muted as corporations paused ahead of election results.

However, the primary cause of the deal slowdown was the country’s continuing equity bull market run, the sources said.

Between June 30, 2023 and July 1, 2024, the BSE Sensex soared from 64,718.56 to 79,476.19, according to BSE data. The Sensex hit a new all-time high of 81,587.76 on July 19.

Among beneficiaries of higher stock market valuations has been oil-to-metals company Vedanta Ltd., which was previously one of the leading providers of private credit lending opportunities in India. As recently as May, the company raised INR 23.725 billion ($284 million) 13.3% non-convertible debentures, via its subsidiary Vedanta Semiconductors Pvt Ltd., with the proceeds upstreamed to Vedanta Ltd. to refinance domestic loans.

Vedanta’s cost of funding had increased amid its rising net debt due to massive dividend payouts to its London headquartered parent Vedanta Resources Ltd., leading in turn to bank funding drying up.

But in July, rather than turning again to the private credit market, the company raised around $1 billion through a qualified institutional placement, taking advantage of its own soaring share price. Vedanta Ltd.’s shares are currently trading at around INR 425 per share as against around INR 277 per share around the same time a year ago.

Despite the $1 billion equity raise – which will help the company to substantially delever as well as meet its capex needs – the equity dilution is just about 5%, according to sources and Reorg’s calculations. The equity raise is expected to bring back bank funding for Vedanta Ltd. and effectively eradicate any need for private credit at the opco level for some time.

Meanwhile, an April 2024 report from Financial Express, citing data from economic think-tank Centre for Monitoring Indian Economy, or CMIE, states that the value of announced new private investment projects fell 29% to INR 9.8 trillion in the January to March quarter of fiscal year 2024. The report adds that overall investment projects that were abandoned, shelved or stalled rose 37 times to INR 1.71 trillion in the same period, the highest levels since March 2019.

While private capex is expected to pick up, demand for private credit will continue to lag for a couple of quarters, the sources said. However, deals in the $20 million to $40 million bracket continue to emerge as private credit funds and banks target mid-sized companies looking for refinancing solutions and last-mile funding for projects, as well as meeting the financing needs of promoters, the sources said.

–Malvika Joshi