HNIs turn to risky debt investments for double-digit returns

Mumbai: Nothing ventured, nothing gained: That's what money managers are telling HNI debt clients to convince them to climb steep risk and financial commitment ladders in search of higher yields.

The risk matrix involves mandating contribution thresholds significantly above the ordinary, helping create an exclusive market for the debt to underpin double-digit returns from instruments that are far from liquid.

Such deals recently include Shapoorji Pallonji's structured trade paper, with a minimum ticket size of ₹10 crore. The Pharmeasy transaction, too, is being hawked with a minimum deal size of ₹5 crore.

These minimums are not mandated by regulations: HNIs can invest with far smaller sums, but are going for larger commitments instead as issuers target a narrow investor class.

Agencies

"Private debt transactions are usually done via a private placement mode, which restricts the number of investors and so, the average ticket size is higher," said Sahil Kapoor, head - Products, 360 ONE Wealth.

API Holdings, the parent of PharmEasy, recently raised ₹1,689 crore through two tranches of unlisted NCDs to refinance debt. The structure offered coupons of 11.10% and 14.5% over three years, secured by pledges of listed ThyroCare shares and unlisted AIPL shares.

HNIs with a minimum ticket size of ₹5.1 crore per PAN could buy these papers from wealth funds. These products have limited liquidity and are riskier than investment-grade debt.

Know Your Risks
Hence, they can be offered only to investors who understand the risk associated with these instruments, said Kapoor.

Earlier this year, a part of Shapoorji Pallonji Group's ₹28,500-crore debentures were marketed to wealthy clients in the secondary market with a ₹10 crore minimum investment.

“Issuers are increasingly setting higher minimum ticket sizes for investors in their bond issuances, as they prefer sophisticated and institutional investors, who are not sentiment driven and who don’t start exiting their holdings, even at a discount, on the first sign of unfavorable news and who the issuer can reach out to for a rational hearing, in case of any dispensations they may need in facility terms,” said Nachiket Naik, head —private credit, Axis MF.

In both cases, issuers are debt-laden or cash-burning companies, while investors are lured by the promise of double-digit returns. “HNIs are being taxed at the highest slab rate, achieving a posttax return of 7-8% requires targeting 12-13% yield, making traditional mutual fund avenues less attractive,” said Swati Singh, executive director & head — Fixed Income at AVENDUS Wealth.

“This gap is driving demand for structured debt among HNIs and family offices, as valuation constraints and limited issuers make these deals one of the few viable channels for investment, yielding better post-tax returns.”

With limited scope for secondary market transactions, investors are often forced to hold until maturity or restructuring. While the deals promise double-digit yields and exclusivity, inadequate transparency increase the risks of concentration, and illiquidity, leaving retail and HNI participants exposed compared with institutional players equipped to underwrite and monitor such exposures.

“Bespoke debt instruments, such as Shapoorji Pallonji and PharmEasy issuances, are increasingly marketed to HNIs, but they carry risks for non-institutional investors since unlike listed bonds,” said an investor