Baring lines up $1 billion investment in India

Software and financial services, healthcare continue to attract the PE firm, which will stay away from e-commerce

Mumbai: Baring Private Equity (PE) Asia, which manages $9 billion in assets, expects to invest at least $1 billion in India from its Baring Asia 6 fund, which closed in February with commitments of $3.98 billion, 60% more that its previous fund of $2.5 billion.

“We don’t have hard allocations, but judging by our past experience, I would be surprised if we didn’t invest at least a billion dollars of the fund in India," Jean Salata, founding partner and chief executive of Baring Private Equity Asia, said in a phone interview.

Salata didn’t provide a timeline for the investment but said his firm is bullish on India, which is an interesting market for PE investment.

Baring has already invested $1.04 billion in the country, according to data from VCCEdge, an investment tracker. In 2013, it had invested $676.7 million across three deals including $389.4 million to part-buyout software services firm Hexaware Technologies Ltd and an investment of $233.5 million in cement maker Lafarge India Pvt. Ltd. Some of the other firms that Baring Asia has invested in include brokerage firm Sharekhan Ltd and infrastructure developer Rithwik Projects Pvt. Ltd.

While the average ticket size for investments from the new fund would be in the range of $100-300 million, the fund won’t shy away from making larger investments, Salata said.

“Ideally, I would love to buy something that’s for a billion dollars in India, but those transactions are hard to come by. I wouldn’t be surprised if we are able to find something that it is in the size of $500 million to $1 billion. It would be much more interesting from our standpoint if we can find such a big elephant to work with," he said, adding that the firm’s recent investments have all been such that it is actively involved in the companies.

There is a fair bit of traction in terms of Indian allocation from Asia-focused funds, according to Raja Lahiri, a partner at Grant Thornton India Llp, a consultancy firm.

“Buyout opportunities are increasing in India and that is a key emerging trend," Lahiri said. “Unlike 2006-07, when it was more about $20-25 million-type of growth capital funding, some of the established funds, including Baring, are moving to buyouts, which need more capital and that explains the rise in allocations for India."

Sectors such as software services, healthcare and financial services continue to attract Baring Asia, said Salata, but it would stay away from e-commerce, which has seen much investor interest in recent times.

For instance, Bengaluru-based e-commerce firm Flipkart has become one of the world’s most sought-after private companies, with its valuation jumping to $11-12 billion at the end of December from $2.5 billion a year ago. It raised nearly $2 billion in capital in 2014 from large institutional investors.

“To put it bluntly, I would say it’s a bubble. The valuations are unrealistic and reaching dangerous levels. I don’t understand how you value a business that doesn’t make money or that makes very little money," said Salata, without pointing specifically to any company.

The lessons learned in the 1991-2001 period seem to have been forgotten by the new generation of investors, he said. “When I see some of these companies raising large sums of money at high valuations, it would make me very nervous if it were my money," Salata said.

Meanwhile, more traditional investments like those in software services, healthcare and financial services continue to attract Barings Asia.

“IT (information technology) services is an interesting sector in India. It’s a sector where India is globally competitive, has a strong pool of talent. It has shown that they can operate at a world class scale and so we remain interested in this sector," said Salata. Within the healthcare sector, the fund is keen on both pharma and healthcare services.

The fund is also keen to partner with firms on inbound and outbound M&A (mergers and acquisitions) transactions.

“We would like to find a partner where we can buy an asset, whether in India or outside of India," said Salata.

Baring Asia’s new strategy highlights a growing trend where private investment firms are looking at innovative investment strategies rather than just conventional equity investments.

Last year, global private investment firm KKR and Co. LP provided a flexible credit facility of €235 million to Amtek Global Technologies Pte Ltd, a Singapore-based subsidiary of India auto components firm Amtek Auto Ltd, to help it retire some it debt it had incurred for its global acquisitions.

Baring Asia also expects to exit from some investments this year.

“There could be one or two exits this year," said Salata, adding that exits are more likely to be through strategic sales rather than through the primary markets.

“Exits through initial public offers have been muted, but exits through the M&A route should be better as there is a lot of inbound interest," said Lahiri of Grant Thornton.