India May Attract Record $4 Bln From Blackstone, Buyout Firms
Bloomberg News, March 16, 2006

March 16 (Bloomberg) -- India may lure a record $4 billion in private equity next year as buyout firms such as Actis Capital LLP and Blackstone Group LP, undeterred by soaring valuations, raise their bets on the world's second-most populous nation.

Buyout and venture capital firms worldwide are set to raise $3.5 billion to $4 billion in funds dedicated to Indian investments in 2007, as much as 48 percent more than last year, said Kathleen Ng, a managing director at the Center for Asia Private Equity Research in Hong Kong.

Among the world's 20 largest economies, only China is expanding at a faster clip than India, and with the stock market at a record high, private equity firms are more confident of being able to take their profits. New York-based Warburg Pincus LLC earned about six and a half times its original investment when it sold its shares in Bharti Tele-Ventures Ltd., India's biggest mobile-phone company.

``It told everybody that not only can you make money when you go in, but there are exit strategies,'' said Robin Tomlin, Singapore-based vice chairman for Asia at UBS AG, which helped arrange a $560 million sale of Bharti for Warburg in October. ``I'm a big bull on India.''

Warburg invested about $292 million in Delhi-based Bharti from September 1999, and earned about $1.9 billion from the sale of stakes in the company, Dalip Pathak, the firm's partner in charge of India, said in October.

Warburg Pincus, which has invested about $1 billion in Indian companies, in October sold its final 5.6 percent stake in Bharti to Newbury, England-based Vodafone Group Plc, the world's biggest mobile-phone company.

LBO Gathering

Executives from Warburg, 3i Plc, Europe's biggest publicly traded private-equity company, London-based Actis Capital LLP and other buyout firms are gathering in Mumbai today and tomorrow to discuss how to make more profits in India even as investments have become more expensive.

The Mumbai Stock Exchange's Sensitive Index, known as the Sensex, is the best performing stock benchmark in Asia. The index has surged 59 percent over the past year, reaching a record 10,803.71 on March 13. The index, closed yesterday for a public holiday, ended at 10,801.72 on March 14.

The stocks on the Sensex trade at an average of 19.7 times estimated earnings per share, compared with the 12.9 times for the Morgan Stanley Capital International Emerging Markets Index.
High Valuations

``The Indian market is expensive and there's no room for error,'' said Anil Ahuja, who heads 3i's Indian business. ``People are going to have to be very selective in what they buy or else they are going to run into trouble.''

London-based 3i made its first investment in India in August by buying about one-third of Nimbus Communications, a Mumbai-based film company, for $45 million. Ahuja said he joined 3i last April from JPMorgan Partners Advisors Ltd. and hired five executives in India over the past six months.

``We will do anything as long as we can see high growth,'' said Singapore-based Ahuja. ``Capital is not a constraint.''

Blackstone Group LP is seeking to invest at least $1 billion in India. New York-based Kohlberg Kravis Roberts & Co. may open an office in India, founding partner George Roberts said in January.

Private equity firms raised about $2.7 billion to invest in Indian assets last year, accounting for 18 percent of the fund pool in Asia outside Japan, according to the Center for Asia Private Equity Research in Hong Kong.

That's more than 10 times the $236 million collected in 2003 and exceeded the amount of fresh capital raised for private-equity investments in China, according to the center.

Mature Markets

India's capital markets are among Asia's most developed. Mumbai, formerly known as Bombay, is home to Asia's oldest stock exchange, founded in 1875. Investors based outside India bought a record $10.7 billion more stock than they sold last year, according to the Securities and Exchange Board.

India, which achieved independence from Britain in 1947, has ``some built-in advantages'' because of its established legal system and English-speaking population, said UBS' Tomlin.

Private equity firms are tapping growth in corporate investment and consumer spending in India, where economic expansion is swelling the wallets of the nation's 1.1 billion people. Opportunities are expanding as the government eases limits on overseas investment in industries such as telecommunications and aviation.

Opportunities

Emerging industries such as pharmaceuticals and technology outsourcing also offer opportunities, said Sumit Chandwani, executive director at ICICI Venture Funds in Mumbai.

``You're not dealing with a government company in China,'' Chandwani said. ``You're dealing with private enterprises that are well run, properly managed.''

India, Asia's fourth-biggest economy, needs $150 billion of investment in ports, roads, power plants and other projects to keep the economy growing at more than 8 percent over the next decade, according to Prime Minister Manmohan Singh. China's economy, the world's fourth biggest, expanded at an annual pace of about 10 percent in the past three years.

Almost half of Indian assets sold by private equity investors handed in returns of more than 100 percent last year, according to the Center for Asia Private Equity Research. In 2003, only 8.3 percent of their investments generated similar returns.

Private equity investors may get ``more modest returns'' of between 25 and 30 percent in future as valuations of companies have soared, said ICICI's Chandwani.

``The valuations are a bit over the top,'' said Chandwani. ``You may not get the kind of returns that you've seen over the last three or four years.''