Private equity investors script major Indian plans

A new breed of private equity investors is eyeing India, hoping to follow the trail of investors such as Schroders, Warburg Pincus, Capital International, Drapers and others which have made huge returns on their investments.

In the current fiscal more than $600 million has been raised globally to invest privately in Indian companies. This figure is expected to touch $1 billion by the year end.

India attracted about $774 million in private equity investment in 2003, a rise of 31.1 per cent from $590 million in the previous year. This year should mark a growth of around 33 per cent in fund flows.

The new entrants include European buyouts veteran Henderson Private Capital, the Singapore Investment Corporation and Standard Chartered Private Equity.

Till now, private equity accounted for less than one per cent of the overall corporate buyout activity in India. But now several pan-Asian private equity funds, operating in the Asian buyout markets, are monitoring India.

Many have quietly set up shop here over the past eight months, sources said.

Henderson, which manages $l.5 billion in funds globally, is investing in India through its $210 million Henderson Asia Pacific Equity Partners I Fund. It will create a $300 million fund for Asia next year, of which 40 per cent will be earmarked for India.

The Singapore government, the second largest foreign private equity investor in India with onsite investments of $500 million till date, has shifted focus from early-stage investments to growth and buyout capital.

Its direct investment company, Temasek Holdings, has teamed up with Standard Chartered Private Equity (SCPE) to set up the $100 million Merlion India Fund.

Even the domestic merchant banking outfits are planing to raise funds for buyout in various sectors including automobile ancillary and pharmaceutical.

Private equity sources said after China, India is the hottest destination for global moneybags and private equity investors seek only growth-related stories such as retail, auto ancillary, engineering, construction and related businesses, pharmaceutical, biotech and health care, sources added.

Merchant bankers said these are also relatively sunrise sectors in the Indian economy and huge investments are needed. Kotak Mahindra Capital Company executive director (investment banking) S Sriniwasan said: "India is seen as a high growth economy after China and we are witnessing a lot of fresh money coming into India with private investors looking at opportunities across the board."

There are a host of private equity investors with the capacity to bring in money in excess of $1 billion, industry sources said.

"The mindset of Indian promoters has changed over the years and they are now open to share berths on the board with outside investors and take their help for the overall growth of the company," said Vamesh Chovatia of Enam Financial Consultants.

One reason for the preference for private equities is that investors have the option to enter early, add value to the company in the formative stages and they find easy exit options at the end of few years.

Warburg Pincus, for instance, which had invested in Bharti Tele-ventures in two rounds, sold a substantial chunk of its holdings recently.