Tuesday, June 24, 2008

The untouchables

Call them new age Al Capones... Inflation never bothers them. Liquidity crunch never gets anywhere near them. They are hugely wealthy private money lenders that step into a turf where all other sources fear to tread. Distinguished only by the clout of their enormous wealth and political connections, they keep a low profile that new age private equity moneybags can never come to terms with. Neither have they the glamour of a venture capitalist or of angel investors which they clearly are not, because they don't waste time on spreadsheets. When banks, financial institutions and other lenders retreat, they make their mark.

Their businesses could be as seedy as that of a Matka (betting syndicates) operator or as legit as that of a diamond merchant that provide them with a front and with an unmatched liquidity that opens up in times of distress to industries that find it hard to raise institutional credit. The real estate property developers and film makers often turn to them to finance their operations as these are deeply capital intensive businesses where cost and time overruns are quite common. Non availability of formal credit in time would mean instant death for the project. Expectedly interest rates range anywhere between 24% – 36% p.a. dependent mainly upon the level of desperation in the market and the number of seekers.

Life must be a lot easier for these guys. They lend on mutual references. What could be their business process? Terms like due diligence, anti-dilution provisions, valuation snafus, dividend recaps, exit worries don’t mean much to them. Funny that the mainstream lenders have such elaborate risk management tools, diligence checks and what not - only to face periodic business cycles at regular intervals to do them in by way of stock market collapse, subprime crisis and oil price surges :-)


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