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PE groups step in to fill gaps as investors desert firms

PE groups step in to fill gaps as investors desert firms

Bangalore / Mumbai: In October 2007, Bangalore-based developer Nitesh Estates tied up with Citigroup Property Investors, the real estate private equity (PE) arm of Citigroup Inc., to set up shopping malls worth around $300 million (about Rs1,180 crore then) in Thiruvananthapuram, Chennai, Kochi and Bangalore over the next three-four years.

Now, Nitesh Estates is looking for another partner or investor for the shopping mall venture, a senior company official said on Monday on condition of anonymity, because the decision to tie up with another entity hasn’t yet been made. Citi received a bailout on Sunday under which the US government agreed to protect the largest US bank from hundreds of billions of dollars in toxic assets and infused $20 billion of fresh capital.

“Citigroup was on a mandate that it will get us an investor or will put in its own money, either of which hasn’t happened. Things are taking their own time, but we may bring in a different investor," said the executive.

Umpteen opportunities such as this, where the existing investor is not able to honour its commitment because of the global financial market turmoil, seem to be cropping up for PE investors that are on a firmer footing.

It’s not just Citigroup, the US bank that fell into trouble in its home market because of overexposure to mortgage-backed securities, but also others such as Lehman Brothers Holdings Inc., which filed for bankruptcy in September, and whose Asia-Pacific operations have now been taken over by Japanese firm Nomura Holdings Inc.

Mint had reported on 4 November that a fund sponsored by Lehman Brothers, which had invested $200 million (Rs1,000 crore today) in DLF Assets Ltd, a firm owned by DLF Ltd, India’s largest realtor by market value, had divested its stake to a unit of its co-investor, London-based Symphony Capital Partners Ltd.

In India, PE groups are not used to buying stakes from other PE firms in what are called secondary transactions. According to Venture Intelligence, a firm that tracks the PE and venture capital industry, there have been seven such transactions this year, and eight all of last year.

But that’s probably about to change, with the redrawing of the investment banking industry in the US amid the global financial tumult. Other investors says they these entities that are trying to weather the crisis are not selling from the third-party funds they manage, but are putting some investments done with their own money, especially in listed entities, up for sale.

“We are seeing a lot of companies from which some existing institutional investors want to exit," said Nainesh Jaisingh, managing director of Standard Chartered Private Equity Advisory (India) Private Ltd, the PE arm of the UK-headquartered bank. He declined to name the entities in exit mode.

Enquiries by Mint show that investment banking entities with PE arms, such as Merrill Lynch and Co. and Goldman Sachs Group Inc. are also in an exit mode. Both Merrill and Goldman declined comment.

Data from Venture Intelligence estimates that Goldman Sachs has done a total of 16 investments worth $900 million in India on the PE front. This excludes real estate. The companies in which it has invested include Bharti Infratel Ltd, National Stock Exchange of India Ltd, Mahindra & Mahindra Ltd and Sigma Electric Manufacturing Corp.

Merrill Lynch, meanwhile has stakes in 6 companies, estimated to be valued at $200 million at the time of the transaction. Lehman Brothers has 11 portfolio companies in its PE arm, the combined value of the stakes being $300 million at the time of investment, according to Venture Intelligence estimates.

Some of the investments were done with their proprietary funds and some with funds raised from third-party investors. Apart from buying stakes from exiting investors, more opportunities seem to be arising for PE firms in companies where an existing fund is seeking partners because it isn’t able to provide additional capital.

“We are seeing a large volume of very high-quality companies where their existing investors are looking at additional funds to complete their fund-raising needs," said Harsha Raghavan, managing director, Candover Advisors India Pvt Ltd, the Indian arm of European PE group Canodver.


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