Plenary Panel: The Potential of Private Credit
Jeff Schlapinski of EMPEA announced the release of EMPEA’s latest report Private Credit Solutions: A Closer Look at the Opportunity in Emerging Markets and discussed the findings with private credit investors Johnny Jones of Vantage Capital, Sanjay Nayar of KKR India, S. Sriniwasan of Kotak Investment Advisors, and Paul Sanford of TriLinc Global. Private credit is an attractive strategy because it provides a solution that does not involve equity dilution. Furthermore, the study highlighted the potential of this strategy on three fronts: higher returns, lower leverage, and greater downside protection. The panel agreed about the attractiveness of private credit in emerging markets for investors as well as for business owners, where it can solve for financing gaps, in markets such as Africa and in India. The panel explained that in India, for example, credit markets only opened up around 2009-2010. Now, the banks are preoccupied with cleaning up their balance sheets and getting rid of non-performing loans. Non-banking finance institutions have similarly become absent in the credit space. This presents a unique opportunity if a team is willing to actively manage risk and credit, especially as banks are restricted from financing company acquisitions and land acquisitions. For Africa, there is an opportunity in the mezzanine and senior debt space, though the opportunity is not yet scalable. Deals are small and tough to find, but the upside is that there is little competition in the realm, leading to deals being more affordable. Though niche opportunities are attractive in both markets, they require active risk management. Having registered and near perfect governance documents prepared by experienced legal counsel, as well as “boots on the ground,” and control of the capital stack are all necessary management criteria identified by the panel for this strategy.