Private Credit Market Surges with Record Investments at $6 bn in H1 2024: EY Private Credit Report

• H1 CY2024 saw record investments, driven by real estate, infrastructure, and healthcare. Domestic funds gained traction, relative to previous years, supported by local expertise and lower-cost capital. In the last 2.5 years, private credit deals exceeded US$20 billion.
• India’s maturing ecosystem shows a shift towards performing credit deals, with funds engaging in sub-18% IRR transactions. High-yield segments, including M&A/buyout deals and bridge-to-IPO transactions, are gaining traction in private credit funding.
  
• The EY Private Credit Pulse survey indicated that private credit investments could hit US$5–10 billion in the next 12 months, with up to US$10 billion in transactions possible in CY2024 alone.
  

Mumbai, 10 September 2024 –  According to the latest edition of the EY Private Credit report, Private credit deals in H1 2024 soared to an all-time high, for any six-month period, of US$6 billion deployed across 96 deals, despite private capex not yet taking off in a significant way. Major deals across real estate, infrastructure, and healthcare sectors have driven the vibrant activity in the market. Domestic funds, leveraging local expertise and the influence of lower-cost domestic money, are gaining traction and market share.

The surge in deal value in H1 CY2024 is largely driven by a few high-value performing and high-yield credit deals, with Reliance Logistics and Warehousing, Vedanta Semiconductors, and Matrix Pharma collectively raising approximately US$1.3 billion. Real estate remains a focal point for credit funds, with deployment across large borrowers such as Prestige Group, Puravankara Group, Kalpataru Group, and Shapoorji Group.

Bharat Gupta, Partner – Debt and Special Situations shared – “Amidst geo-political uncertainties, India’s robust economy, stable currency, and strong banking sector stand out making India an attractive investment destination. As a result, Private Credit investments are at an all time high led largely by growth oriented investments.   The outlook remains promising, though thorough due diligence and effective deal oversight remain crucial to maximizing returns and managing potential risks.”

As the private credit ecosystem in India matures, there is a subtle shift towards performing credit deals in India with funds increasingly engaging in sub-18% IRR transactions. In the high-yield segment, mergers and acquisitions/buyout deals, and bridge-to-Initial Public Offering transactions have gained traction within private credit funding. High-net-worth investors and family offices are increasingly participating in private credit as a key asset class, boosting the popularity of domestic funds. The report also covers private credit exits that reflect a vibrant market, with substantial returns and evolving strategies in the private credit landscape. This edition also includes a deep dive into select use cases of private credit, offering readers a glimpse into the diverse types of deals being concluded recently.

India as a Key Investment Destination

India's economy is projected to grow by 7% in CY2024, making it a key investment destination in a turbulent global landscape. The country's stable currency, political certainty, and strong banking sector are significant factors contributing to this outlook.

The Indian banking sector has shown a strong performance in FY24, with a 16% year-on-year growth buoyed by solid capital ratios and Gross Non-Performing Assets (GNPAs) dropping to below 3%. Despite higher lending rates, credit demand persisted. Meanwhile, Non-Banking Financial Companies (NBFCs) saw moderated Assets Under Management growth, driven by the non-mortgage retail segment. NBFCs and debt mutual funds showed mixed trends, with corporate bond issuances in India growing by 9.4%, driven by private placements despite tax changes affecting debt funds.

Even with these positive indicators, the rise in unsecured loans, which now constitute 36% of incremental retail loans, and fierce competition for deposits, are areas of concern that hint at underlying tensions.

Dinkar Venkatasubramanian, Partner and Head – Debt and Special Situations shared – “On one hand, significantly improved credit discipline has led to reduced opportunities for stress led investment opportunities, strong corporate balance sheets are providing opportunities to partner in acquisition and capex led financing. Indian private credit continues to show robust fund raising and new fund registration activity”

Optimism for Future Investment Opportunities: EY Private Credit Pulse Survey

The report features “EY Private Credit Pulse survey” conducted in July 2024 revealed a strong focus on real estate and manufacturing sectors, driven by capital expenditure and acquisition funding. The findings revealed a split between those targeting high yields (18–24%) and those focusing on performing credit (12–18%). A strong preference for real estate and manufacturing emerged, driven largely by capital expenditure, which remains the chief catalyst for private credit deals. M&A and PE exits also play crucial roles, while securitization holds a minimal influence. Fund managers express confidence, with 58% optimistic about fund availability and 91% positive about near-term investments. Despite increased competition—73% noting a rise in deal competitiveness—real estate is seen as the riskiest sector. Projections suggest private credit investments will range between US$5–10 billion over the next year, with domestic family offices playing a significant role. The market remains vibrant, balancing caution with a forward-looking optimism.

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