News: Non-traditional private equity is streaming into India

(DNA 29/06/2006) Mumbai - Private equity is turning hotter by the day, with more players sloshing into India.

Only this time, the demographic quality of the funds is changing - it has a more global feel to it. Unlike the earlier bursts of largely US-based private equity firms, today, Japan, Middle East, Far Eastern and European firms are pitching their tents in India.

Some of the new names include Mitsui and Sumitomo from Japan, Ishtamar and Abraj Capital from the Gulf and Khazanah, the equivalent of Singapore’s Temasek in Malaysia.

There’s also Citron Capital, Whiterock Partners, New Enterprise Associates, Trinity Hunt Partners, Battery Ventures, Matrix, Benchmark, Graylock and Sutterhill from the US, and global firm Apax Partners. In May this year, WestBridge Capital Partners (promoted by four Indians) was merged into Sequoia Capital to form Sequoia Capital India, in a move that marked the latter’s long-term commitment to India.

Like the earlier converts, the India growth story continues to be compelling.

In the last six years, private equity investments grew from barely $500 million in 2000 to breast the tape at $2.3 billion last year, according to Venture Intelligence India. Even the number of deals went up from 68 deals two years ago to 147 last year.

“By the end of this fiscal, we could see the capital committed increase by around 30-40%,” said Shahzaad Dalal, vice-chairman and managing director of IL&FS Investment Managers.

Amrish Baliga, head of the private capital practice at ICICI Securities, said that nothing had changed regarding private equity in India.

“The players have been pouring in through pre-IPO placements, block trades or limited minority stakes with minimal rights. The one with the more flexible investment philosophy will be the winner.”

Also, what’s made them lick their chops is last year’s sensational deal, when Warburg Pincus sold a chunk of its stake in cellular player Bharti Tele-Ventures for $560 million.

This, when its investments between 1999 and 2001 in Bharti was a mere $300 million. So far, Warburg has made $1.1 billion selling two-thirds of its 18% stake in Bharti.

Or look at Kohlberg Kravis Roberts’ (KKR) entry into India by acquiring 85% stake in Flextronics International for $900 million including its Indian operations.

It became the largest private equity buyout in the Indian information technology (IT) space and the first by KKR in the country.

At the same time, there are others like Blackstone and Carlyle’s premier private equity arm that are yet to strike a deal.

“That’s because company valuations were too high or they just haven’t found the right company,” said Nitin Deshmukh, head of private equity at Kotak Mahindra Bank.