Family Office Sees Value in Downtrodden Indian Shadow Lenders

(Bloomberg) -- A family office that manages money for India’s wealthy Jhunjhunwala family is looking to invest in finance companies which have been pummeled by the crisis in the country’s shadow banking sector.

Singapore-based AJ Capital Asset Management Pte sees good value in the shares of the downtrodden non-bank lenders, according to the firm’s Chief Executive Abhinav Jhunjhunwala. He said he’s also looking to invest in private companies in the sector, including through acquisitions.

Family Office Sees Value in Downtrodden Indian Shadow Lenders

“A lot of these companies in terms of where their share prices are have been penalized disproportionately,” Jhunjhunwala, 34, said in an interview. “I’m fairly bullish that a lot of the decent quality businesses will recover.”

Family Office Sees Value in Downtrodden Indian Shadow Lenders

AJ Capital manages money for Jhunjhunwala and his immediate family members.

India’s non-bank financing sector, which provides nearly four out of every 10 loans to consumers, has suffered from a 1.2 trillion rupee ($16.9 billion) funding shortfall after costs skyrocketed last year. The crisis was triggered by the default at one of the nation’s biggest lenders, Infrastructure Leasing & Financial Services Ltd., prompting the government to step in and seize control of the lender.

Fears of wider market contagion have led to the collapse of the share prices of Dewan Housing Finance Corp. -- down 76 percent over the past 12 months -- and other firms in the sector.

AJ Capital may also consider acquisitions of non-listed firms in the sector, according to Jhunjhunwala, who previously worked at Deutsche Bank AG’s proprietary-trading desk covering structured credit and at hedge fund Valiant Capital Partners LP in San Francisco. He’s the son of Reliance Capital’s vice chairman Amitabh Jhunjhunwala, one of the most senior executives in the business empire of tycoon Anil Ambani.

While the family office invests mostly in listed financial assets globally, it also allocates some funds to private firms. For example, AJ Capital is the largest shareholder of India-based insurance-selling platform Symbo, which also counts hedge fund Dymon Asia Capital Singapore Pte’s ventures vehicle among its other investors.

Blackstone Group LP and some other private-equity firms have already swooped on some of the assets in India’s non-bank industry. Earlier this month, funds managed by Blackstone bought 70 percent in Aadhar Housing Finance Ltd., a mortgage lender to low-income households. Bain Capital LP and Hero FinCorp Ltd. are in talks to buy a 10 percent stake in Dewan Housing, the Economic Times reported last week.

Among private shadow lenders, it’s “a great time to go out and build fantastic teams and perhaps acquire lines of businesses” which may not be core to their offerings, such as in insurance, Jhunjhunwala said.

A “reasonable amount” of capital required for such a transaction would be around 5 billion rupees -- enough to get a lender started, build a reasonable asset book and borrow at scale, he added, while declining to say exactly how much his firm is looking to raise for potential acquisitions.

Fund Outperformance

Jhunjhunwala said AJ Capital has posted an average 11 to 12 percent annual return since its inception in 2012. That compares favorably with the average 4.7 percent generated by hedge fund managers investing in international assets over the same period, according to the Eurekahedge Hedge Fund Index.

Here are some of Jhunjhunwala’s other market views and calls:

  • AJ Capital is long gold and overweight emerging-market equities including India and China
  • Favors developing-nation currencies and is long rupee versus dollar, which he sees weakening in 2019
  • Sees more upside in oil prices which may rise to $80 a barrel in 2019

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