Blackstone’s tough start, tale of caution for PEs

Blackstone’s tough start, tale of caution for PEs
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First Published: Wed, Jan 21 2009. 10 09 PM IST
Updated: Wed, Jan 21 2009. 10 09 PM IST
Hong Kong / Mumbai: New York-based Blackstone Group has invested at least $730 million (Rs3,584 crore now) in India since arriving three years ago, only to see much of it wiped out by the country’s weakening economy and stock market plunge.
Blackstone’s tough start is a cautionary tale to other Western private equity (PE) firms such as Kohlberg Kravis Roberts and Co. (KKR) and Permira that are opening offices in Mumbai. If newcomers weren’t already wary of India’s foreign investing rules, which forbid borrowing and set a purchase price range, certainly Blackstone’s performance so far may give them pause.
Blackstone is not the only PE firm watching its Indian investments take a hit, as Warburg Pincus can attest. But unlike Warburg and other PE players, Blackstone is relatively new to India. It hasn’t been here long enough to sell stakes to balance losses with gains. Worse, it appears to have done most of its eight Indian deals at the very top of the market.
Blackstone says it remains a long-term investor in India.
“Short-term capital market volatility does not alter our investment thesis nor does it impact our commitment to an investee company,” Blackstone India head Akhil Gupta said in an email reply to questions about the portfolio. “We are long-term investors who are focused on adding value to portfolio companies over long periods of time.”
Blackstone launched plans to expand in Asia in 2005, choosing India as its first destination after hiring Gupta from Reliance Industries Ltd to run the Mumbai-based team.
India’s economy, despite a slowdown, is still growing significantly. Foreign money is attracted to future growth prospects and the ability to buy assets on the cheap.
The broader Indian market fell 52% last year.
Shares of Nagarjuna Construction Co. Ltd have fallen 71% since Blackstone agreed to invest $150 million in August 2007. Garment maker Gokaldas Exports Ltd has also lost 71% of its value since Blackstone inked a deal that month for $165 million. Last February, Blackstone said it would invest $60 million in transportation company Allcargo Global Logistics Ltd when its stock was at Rs735.40 per share. Eight months later, the stock was worth less than half that amount. It has since rallied.
Gupta said at least one Blackstone professional is spending at least a day a week at each of its portfolio firms, and that the firm’s investment horizon is five-seven years. “Most of our India portfolio is less than two years old, so we are in relatively early stages of our investment cycle,” he said.
Not long after Blackstone launched in India, KKR paid $900 million for a majority stake in the Indian software business of Flextronics International. Flextronics shares have since fallen nearly 80%.
“Basically it depends on the time horizon. The investment outlook is likely to be four-five years for a typical PE deal,” said Arun Natarajan, CEO of Venture Intelligence, a local PE and venture capital deal tracking firm speaking about the industry. “Under that assumption it is still a paper loss. They can still make money.”
New York’s Warburg has invested in auto component maker Amtek Auto and plastics products maker Sintex Industries, both of which have struggled through India’s slowdown. Warburg also invested in ICICI Bank Ltd in 2007, shares of which have plunged by at least half since the deal. Warburg declined to comment.
But Warburg’s relatively long history in India, and the money it has made from certain investments such as mobile operator Bharti Airtel Ltd, cushions it for the current downturn in the region.
Blackstone doesn’t have that luxury.
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First Published: Wed, Jan 21 2009. 10 09 PM IST