India-focused alternative asset management firm Eight Capital Management is launching a mezzanine income fund targeting a corpus of $250 million in order to provide capital to high-growth companies in India. This will be the firm’s second investment fund, coming after its maiden distressed and special situations fund Eight Capital Master Fund.
The mezzanine fund will be headed by Ravi Chachra, the founder and CIO of Eight Capital, who expects the fund to generate “equity like returns with an income stream in the mid-teens, while also providing the downside protection of a debt fund.”
Eight Capital’s goal is to deliver IRR of 20 per cent to its LPs over the five year life of the fund. The fund will be managed by the company’s 10-person team in Mumbai who have delivered 20 per cent IRR for LPs of the first fund.
The mezzanine fund will target companies where the mezzanine finance will produce enormous operating leverage, thus boosting free cash flows and, thereby, increasing earnings and equity valuation of the companies.
The reason why the firm is floating a mezzanine fund is that the fund manager believes: “India’s high-yield market is in early stages of explosive growth, as it offers global investors an unbeatable combination of high interest rates, along with equity exposure in India’s rapidly growing mid-cap companies. India’s corporate credit market offers some of the highest credit spreads for healthy growth companies, making the Indian mezzanine market one of the best investment opportunities in the credit world today.”
Eight Capital Management that commenced operations in September, 2005, is headquartered in the USA, but also has an office in Mumbai. Its India investments from the first fund include companies such as steel firm Pennar Industries, cement maker Panyam and tyre maker Dunlop India.
Last year, it teamed up with Spinnaker Global to make an open offer to shareholders of Pennar Industries to buy 20 per cent in the company for around Rs 72 crore, plus interest for the delay in making the open offer that was originally scheduled for January, 2008. Spinnaker and Eight Capital had originally invested Rs 122 crore. But the pricing of the open offer did not make it attractive to tender shares and the financial investors did not add much in the offer. Eight Capital continues to own around 9 per cent in the firm.
Eight Capital is led by software engineer and Wharton Business School graduate Ravi Chachra who was previously focusing on distressed under-the-radar companies at J. Goldman and The Chatterjee Group. He was also associated with running trading books focused on emerging market debt and currencies for Deutsche Bank Proprietary Trading Division and J.P. Morgan Chase.
He is assisted by fund partner Vikram Chachra who was earlier the managing partner at Impactix, a New York-based M&A advisor to companies in the wireless sector. Prior to that engagement, he was heading the mobile division for Snapfish.com. During the dotcom boom, Vikram also co-founded SNAZ, a mobile commerce network that was later acquired by Motorola. During the late 90s, The XLRI-Stern School of Business graduate had also worked as a fixed income trading associate at Banco Santander’s Emerging Markets Proprietary Trading desk.