The industry-super-owned fund manager's credit team has about $500 million to deploy in the year ahead, eyeing opportunities in lending to mid-sized companies that will be forced to refinance after the COVID-19 crisis.
IFM's credit team manages about $7.5 billion, of which roughly $4 billion is in direct lending and the rest across warehouse facilities for non-bank lenders making consumer loans and fixed income.
Hiran Wanigasekera, an executive director at IFM Investors with joint management responsibilities for key credit portfolios said the team has $500 million to $600 million in dry powder, and it sees opportunities to lend it to mid-sized companies, property developers and private equity firms.
"We expect to see a lot of companies -- because they will be operating in a weaker operating environment for the rest of the year -- have funding gaps that they will have to fill. Not everyone has the opportunity or ability to go and raise equity. So some of these companies will need people like us," Wanigasekera told Financial Standard.
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"That may mean coming in and lending alongside the banks because they don't have as much appetite or the ability to write as big cheques going forward. It may come in the form of mezzanine or subordinated capital...We are open to looking at that."
IFM has played in direct corporate lending since the inception of its credit team in 1999.
The corporate lending portfolio is the biggest it has been over the lifetime, with about $4 billion currently on loan to 40-50 companies on its books.
And it has increasingly nabbed the 17-strong team's focus away from fixed income, which is a shrinking part of IFM's debt portfolio and has become increasingly opportunistic.
"We are more likely to provide private placement financing or bank lending now than we were in the first 10 years of our existence [because] of the change in the market's lending conditions and the change in the people that we manage money for [superannuation funds]," Wanigasekera said.
"Our expertise is really in complex credit analysis and people really look at us to do the due diligence on private deals as opposed to playing in just the fixed income market."
The corporate lending portfolio lends to large ASX-listed companies (via corporate bonds, private placements and institutional loans) to mid-market companies with $15 million to $20 million EBITDA that generally are privately owned.
In 2017, IFM joined forces with AustralianSuper to lend $150 million in long-term debt to Australian billionaire Anthony Pratt's cardboard maker Vizy Industries. It has also financed infrastructure projects including New Royal Adelaide Hospital.
Its returns in lending to companies range from BBSW plus 250 to 400 bps for large caps, investment grade to BBSW plus 450 to 800/900 bps in sub-investment grade lending with a three to five-year tenor.
Wanigasekera said it has been a quite year so far but the team started to rebuild its pipeline of future investments over the past week few weeks.
In addition to mid-market corporate lending, it sees an increased demand from property developers and private equity firms looking to finance buyouts as asset prices become cheaper.
"We are going to see the valuations come down in commercial property in particular and that will open up some opportunities. Property development activity has taken a big hit in this environment and developers are going to need to recycle capital," he said.