Promoters keen to guard equity are turning to private credit before IPOs

livemint.com:

Mint. Significantly, private credit is growing despite high global interest rates because it offers flexible terms for pricing, duration, and structure. This flexibility helps companies manage their costs and cash flow more effectively in a challenging interest rate environment.

According to Nilesh Dhedhi, managing director and CEO of Avendus Finance, which provides private credit solutions, there are some instances where a company’s growth outlook is diminished due to temporary external factors, resulting in lower valuation. In such cases, he said, the companies can resort to structured private credit solutions for refinancing existing debt, or carrying out acquisitions and, thereby, delaying the IPO for a couple of years to achieve better value.

For instance, Avendus Finance had funded a specialty chemicals company that was planning an IPO in 18-24 months. “When the company received a large order needing quick capital, traditional sources like banks and private equity would have been too slow," said Dhedhi, adding that it was then the company turned to private credit.

“Over the course of two years, the company was able to significantly scale up, nearly doubling its valuation by the time it approached the IPO market," he added. “We have witnessed companies and promoters using the instruments for family settlements, acquisitions, and getting over high-debt situations, amongst others," said Munish Aggarwal, managing director head- equity capital markets, Equirus, adding that private credit is generally a non-dilutive instrument that allows companies to time their IPO once their challenges are addressed.