Special situations and private credit funds have been increasingly looking at the high yield Indian market. With banks facing liquidity and risk issues, alternate capital with customised solutions seem attractive. Structured commonly through collateralised redeemable bonds with pay-outs deferred until maturity, these bonds may have equity kickers built-in as well, in the form of redemption premium linked to any variable, such as underlying equity share price or cashflows. While offshore capital is interested, currency, tax withholdings, enforceability and regulatory risks dampen the return profile on a risk-adjusted dollar return basis.

In recent times, there has been a constant push towards ‘onshoring’ of credit structures. Offshore funds are setting up NBFCs and AIFs which pool offshore capital and deploy domestically. A debate often is which one to choose? We analyse the merits of each domestic credit vehicle from various perspectives viz. growth v yield vehicle, capital raise, monetisation and regulatory fetters. We also analyse structures for foreign investors to acquire standard and sub-standard loan portfolios.