Deutsche Bank targets India credit vacuum left by bad loans

Singapore

DEUTSCHE Bank AG, which is in the throes of a global restructuring involving thousands of job cuts, is zeroing in on an Asian market where an unprecedented bad-loan clean-up offers the potential for a credit bonanza.

In India, where bankruptcy law changes have injected urgency into efforts to restructure US$210 billion of stressed assets, Deutsche Bank sees an opportunity to generate outsized returns by refinancing and trading debt, according to Amit Khattar, Asia-Pacific co-head of global credit trading.

Mr Khattar is considering adding to his team. "For India, this is where we think the greatest alpha lies for our credit and financing businesses in the region," Singapore-based Mr Khattar said. "We want to get involved in most of the major deals out there. The bank has no constraint in terms of scaling up in this area if there's an opportunity to grow the business."

Speculators are flocking to India, lured by what the nation's richest banker has called a "once in a lifetime" opportunity to sift through the wreckage of its bad-loan debacle. Deutsche Bank is already a force there: much of its Asian credit exposure is in India, and the nation accounts for the second-biggest share of regional profits.

The bank plans to team up with other firms to arrange financing for Indian debtors, Mr Khattar said. It is looking for partners to offer debtor-in-possession funding - which can keep a business operating during bankruptcy proceedings - as well as for structuring equity and debt financing for companies before they slip into difficulty.

Mr Khattar manages more than 100 people in his Asia-Pacific team, which provides working capital to companies and trades debt on secondary markets. Headcount has been stable in the past four years, and any addition is not expected to be massive, he added.

He shares the team responsibility with Tokyo-based Beaux Pontak, and both of them report to global head of credit trading Chetankumar Shah in Singapore, the bank said.

Frankfurt-based Deutsche Bank is cutting at least 7,000 jobs as new chief executive officer Christian Sewing seeks to end three straight years of losses. The firm dismissed four traders in the US who focused on debt markets, and Chris Lahoud, the head of the distressed team, is leaving, people with knowledge of the matter said last week. In Asia, it is trimming some equity sales and derivatives coverage, Bloomberg reported last month.

Deutsche Bank had 15.2 billion euros (S$24.2 billion) of credit risk exposure in India as at December, making up about 16 per cent of its total across Asia-Pacific markets, according to its 2017 annual report. That included lending commitments and traded bonds and debt. By comparison, Japan accounted for 17.3 billion euros while China and Hong Kong made up 16.5 billion euros.

This year alone, Indian lenders are racing to rehabilitate more than four trillion rupees (S$79.6 billion) of troubled loans, as the Insolvency and Bankruptcy Code in 2016 and banking rules force defaulters to pay up or restructure. From Canadian pension funds to Asian investment banks, more capital has flowed into lending, rescue financing and trading of distressed securities.

Recent debt restructuring cases in India have involved some of the nation's biggest companies, including Reliance Communications Ltd, Essar Steel Ltd and Bhushan Steel Ltd. BLOOMBERG