Seventy eight private equity players are looking to raise $24 billion in 2009 for investing in India, three times that of last year, when 30 private equity players raised $9.2 billion, a research report says. This also includes real estate funds.
Meanwhile, 117 Pan-Asian private equity (PE) players — with India as focus — aim to raise funds worth $59 billion, says UK-based Preqin, an alternative assets research and consultancy group. “We have reached this estimate after talking to all concerned general partners. These are our current figures for fund raising,” said Tim Friedmen, company spokesperson.
On a global platform, he said, majority of investors remain positive towards private equity. A Preqin survey conducted in December 2008 reveals that 29 per cent of investors intended to increase their private equity portfolios in the medium to long term, while 67 per cent intended to maintain their allocations. Only 4 per cent of those polled intended to reduce their allocations to private equity in the future.
“In 2008, PE investments in India was close to $10 billion, but the total amount raised for 2008 would be 2-3 times of what has been invested. Besides, India is a growth story while everywhere else, there is recession,” said C G Srividya, Partner, Specialist Advisory Services, Grant Thornton.
| Fund-raising plans of private equity funds focusing on India | ||
| Fund | Type | Size ($mn) |
| ICICI Venture Capital Fund III | Venture (General) | 1,500 |
| Macquarie State Bank of India Infrastructure Fund | Infrastructure | 1,500 |
| IDFC India Infrastructure Fund | Infrastructure | 1,000 |
| India Infrastructure Advantage Fund | Infrastructure | 1,000 |
| Reliance Capital I | Venture (General) | 1,000 |
| Trump Organization India Fund | Real Estate | 1,000 |
| Walton Street Capital India Fund I | Real Estate | 1,000 |
| Source: Preqin | ||
Aditya Birla Private Equity is an example. The Aditya Birla Group had earlier this month announced its entry into the PE segment and plans to raise a corpus of $200-250 million by the end of this year.
“While we announced our venture into the PE business only now, we have been working towards it for the past one year. And we have been talking to both domestic as well as international Limited Partners and hence are confident of raising this fund,” said Bharat Banka, Managing Director and CEO, Aditya Birla Private Equity. The group would also contribute $100 million in the corpus.
K Srinivas, MD, Saffron Capital Advisors, agrees with the report. However, he feels the scenario looks certainly tough. “For the next couple of months, Japan, Europe and the US markets are not going to show any signs of revival. Whereas, India will be much faster in recovering and hence, raising this capital is quite possible,” he added.
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The Preqin report further highlights that fund-raising in 2008 and the previous few years has left PE firms with significant levels of dry powder or uncalled capital, available for new deals. Globally, the research firm states that the total uncalled capital currently stands at $1.02 trillion, of which buyout funds have the largest share with $472 billion. India specific data is not available.
This also means that going ahead, investment will be much more stringent and investment closure will be longer. “While that is true, I feel that PEs will also be stricter in deploying those funds. The risk-return matrices will be far more conservative, therefore the developer (in the case of real estate funds) may have to offer higher stakes for lower amounts of funding. This is even more so, as valuations have dipped significantly,” said Ritesh Vohra, Director-Investments, Saffron Asset Advisors.
“The way deals are structured has already changed with developers offering preferred returns to investors. Given that there is a valuation mismatch between the funds and the developers, investors are now saying this is how much we will invest and this is a return structure that we are looking at.”