Nalanda Capital Pte. Ltd, the Singapore-based private equity (PE) investment firm founded by former Warburg Pincus India head honcho Pulak Prasad, is now officially in business. The firm concluded fund-raising for its $400 Nalanda Capital India Fund in late May and will invest in publicly listed companies here.
Nalanda Capital’s Pulak Prasad
This is the first instance of a PE firm focused on the Indian market to formally state PIPEs (private investment in public enterprise) as its sole investment strategy. Prasad was not available for comment but a person familiar with the matter said Nalanda is slated to announce its first investments in the country shortly.
Prasad quit Warburg Pincus last October after a nine-year stint with the New York-based PE investor. He was joint managing director in charge of the firm’s South-East Asia and India investments alongside Rajesh Khanna. In December, the 38-year-old Prasad, who is credited with co-leading (with Khanna) Warburg’s landmark $300 million investment in Delhi-based Bharti Televentures in 1998, relocated to Singapore to start up Nalanda—the name is a reference to Nalanda University, an ancient university in Bihar, from where Prasad originally hails.
The Bharti investment gave both Warburg and Prasad invaluable credentials as PE investors in the Indian market—the firm had earned $1.9 billion from the investment by the time it sold out the remainder of its original 20% stake in November 2005.
At Nalanda, Prasad and his five-member team intend to apply the “private equity model of investing to the Indian public market,” as stated in the firm’s investment thesis on its website. Nalanda will take long-term positions in listed companies and will be sector-agnostic. “Several people had assumed that Nalanda would be a hedge fund. However, while the focus is clearly on listed securities, the investment thesis is far from that of a hedge fund,” said the person familiar with the matter who did not want to be named.
The focus on PIPEs is not unusual, given that such deals currently dominate the Indian PE market. According to informal industry estimates, PIPEs accounted for more than 60% of total PE transactions concluded here in 2006. In mature markets such as the US, such deals do not account for more than 10% of overall investments. Prasad, in his earlier stint with Warburg, was one of the early practitioners of PIPEs in this market. Some of the notable PIPE deals Warburg pushed through while he was at the helm include Kotak Mahindra Bank, Sintex Industries, Nicholas Piramal India, Satyam Computer Services and Vaibhav Gems.
The case for PIPEs is strengthened by the return potential of such investments. PE firms typically look for an average 30% return on investments and such returns are usually earned by taking controlling stakes in under-valued, private companies.
In India, promoters of most privately held firms are still unwilling to give majority control to PE investors. As an alternative strategy, PE investors have resorted to investing in listed firms, which despite being listed are relatively young and under-valued and therefore hold the potential for PE-type returns.
Nalanda’s debut in this market as a full-fledged PIPEs investor will pitch it against veterans such as Delhi-based ChrysCapital Investment Advisors, Citigroup Venture Capital, Temasek Holdings and, of course, Warburg Pincus.