SC Lowy identified an attractive investment opportunity in Essar Energy’s 2016 convertible bonds (“CB’s”). Essar was facing a liquidity crunch – driven by an adverse regulatory ruling and funding requirements for a strong growth pipeline – and as a result, the CB’s traded down to as low as 50 cents on the dollar.
After conducting detailed fundamental research on the valuation of the Company, its liquidity profile and its complex corporate structure, we were convinced of the value proposition in this investment. Through active dialogue with our clients, we were able to trade over USD 340 million of face value of the CB’s with over 40 counterparties from 2012-2014. Our conviction in the name was evident to our clients via our own position in the bonds and was complemented by our strong relationship with management and detailed knowledge of the asset base.
Essar Energy was eventually privatised in a transaction that included an early redemption of the CB’s at par, leading to a 2x+ return and generating ~40% IRR’s for clients that had invested alongside us in early-to-mid 2012. SC Lowy was also an active member of an ad hoc group that played a crucial role in negotiating a par take-out for the bonds.
SC Lowy’s strong research capabilities were crucial in identifying value where others couldn’t, and our diverse global distribution network enabled us to materially enhance liquidity for the CB’s.