Monday, June 18, 2007

Vulture Funds investing in SMEs

There was an interesting article in the Economic Times on June 13, on how distressed assets funds (also called as Vulture funds) have been attracted to the SME segment in India. Over the past six months, funds specialising in distress assets like ADM, Clearwater, Citadel, Goldman Sachs Special Situations and DE Shaw have invested in such companies.

Spinnaker has invested in Spice Telecom and Clearwater in Sanghi Movers and earlier Diamond Cables. While Asia Debt Management (ADM) has invested in Rama Pulp and Paper, DE Shaw has invested Amar Ujala, Citadel in Aban Lloyd and Goldman Sachs has put in money in Cremica.

Both the SMEs as well as distress funds have their own motives to embrace each other. The SMEs may get funds for working capital from the banks, expansion capital is much more difficult. From a distress funds perspective, there are not enough distress opportunities considering the economy is growing at around 9%. Hence funds are forced to look outside their focus area

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