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TPG Capital agreed to buy ICICI Home Finance after parent ICICI Bank decided to lower the valuation of the home financier. Photo: Pradeep Gaur/Mint
TPG Capital agreed to buy ICICI Home Finance after parent ICICI Bank decided to lower the valuation of the home financier. Photo: Pradeep Gaur/Mint

TPG Capital partners three LPs for ICICI Home Finance deal

TPG Capital has brought on board Temasek Holdings, Singapore's GIC and HarbourVest Partners for the $320 million deal

Mumbai: Private equity firm TPG Capital has partnered three of its limited partners (LPs) to close its acquisition of ICICI Home Finance Co. Ltd for as much as $320 million, according to two people briefed on the matter.

TPG has brought on board Temasek Holdings Pvt. Ltd, an investment arm of the Singapore government, Singapore’s sovereign wealth fund GIC and US-headquartered HarbourVest Partners, a private equity fund of funds and one of the largest private equity investment managers in the world, the two added, asking not to be identified.

“TPG follows a strict disclosure policy and hence is unable to confirm or deny these suggestions about our interest in the company," said the spokesperson at TPG Capital in a response to an e-mail seeking comments. Spokespersons for GIC, Temasek and HarbourVest did not respond to e-mails seeking comments.

Investors that commit capital to a private equity firm are called LPs. They are usually pension funds, institutional accounts and wealthy individuals.

“LPs are committing about one-third of the total deal size, with two-thirds coming from TPG," said one of the two persons mentioned above.

“It’s a big-ticket transaction. It just makes sense to get LPs on board. We are seeing this in quite a few deals," said the other person.

TPG Capital agreed to buy ICICI Home Finance after parent ICICI Bank decided to lower the valuation of the home financier, and the deal will be closed at a valuation of 2,100 crore, Mint reported last month.

TPG, which operates in India through growth investment fund TPG Growth and buyout fund TPG Capital, has deployed more than $1.5 billion in the country over the past decade.

TPG’s partnership with its LPs highlights the renewed trend of co-investing, where a private equity firm closes a deal by investing a certain amount and getting some of its large LPs to chip in.

Recently, ChrysCapital Investment Advisors India Pvt. Ltd partnered one of its limited partners to pick up a 5% stake in National Stock Exchange of India Ltd in a deal valued upwards of 900 crore.

“ChrysCapital and one of its investors has taken a 5% stake in the company," confirmed Kunal Shroff, managing partner at ChrysCapital, without divulging the name of the LP. The private equity (PE) firm found it prudent to partner with a LP than lose the deal to a rival.

Last year, TPG Growth, alongside Temasek, was in the final race to acquire multi-speciality healthcare chain Care Hospitals. However, the duo were outbid by Dubai-based Abraaj Capital. Also last year, private equity firm Advent International Corp. and Temasek partnered to buy a 34.37% stake in Crompton Greaves Ltd’s consumer electricals business for around 2,000 crore.

For LPs, co-investing makes sense. Riding on the knowledge base and due diligence process of the general partners (GPs), LPs get exposure to a potentially high-quality company without paying a management fee in most cases and also get a better yield on their investments.

ALSO READ: TPG Capital to buy ICICI home finance arm

More often than not, it turns out that the GP behaves as a banker without a fee in these cases. In a typical LP-GP relationship, general partners are entitled to a 2:20 fee structure (2% annual management fee and 20% share in realized profits).

“LPs increasingly want to take direct exposure and are typically insisting on this when making commitments. This enables them to take direct control over the investee, be directly involved in decisions and of course saves them the fee that they would otherwise pay GPs. The negatives are the need to spend more time monitoring investments and keeping track and engaging with the investee companies directly," said Harish H.V., partner, Grant Thornton India Llp.

Private equity firms expect co-investments with LPs to further increase in 2016, according to Bain & Co.’s India Private Equity Report 2016.

Dry powder, or the amount of uninvested capital sitting with private equity funds, was $11 billion in 2015, suggesting there is no dearth of capital. That number doesn’t include additional capital meant for India via allocations from global and regional funds.

In addition, several sovereign wealth funds (SWFs) have increased direct participation in India deals: the number of deals SWFs participated in directly increased to 24 in 2015 from 19 in 2014.

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