Monday, November 10, 2008

Mr.Bernard Shaw has been perceptive

"If history repeats itself, and the unexpected always happens, how incapable must Man be of learning from experience" – George Bernard Shaw

So I read Sandeep Singhal, MD, Nexus India Capital ( PE fund) and Pankaj Dhandaria, Director, Transaction Advisory of E&Y, reaffirming India as an attractive Investment destination for PE funds as it has robust financial, legal and regulatory framework, mature markets and although moderated, still being reckoned as a growth economy. The long-term perspects of funds, with 7-10 year lock-ins, is aligned with India’s medium- to long-term growth potential. So isn't it time for all the old rhetoric to make a comeback? You bet -on india’s long term prospects, an aspirational young population, the entrepreneurial spirit, resilience, perseverance and innovativeness of Indian promoters that promises great returns to patient PE investors or so it begins to go.

So I ask, why did they run away…? Have something changed in between…?

Pankaj argues Indian infrastructure and Industrials offer great opportunity since there are several projects now reasonably valued, yet to achieve financial closure. They all need capital.

So it’s been always… They found it so and that’s why they came here… What made them dump it all and run…?
According to Bain & Co, a consultancy, private equity funds invested a total of $1.4bn in 2006, and $3.6bn last year. However, in the year to date aggregate, Pipe investments have totalled $1.4bn.
They had better recognize the problem is with the PE investor mindset. Especially the foreign ones. They chased projects madly when valuations were ridiculously high, deals I thought should never happen, happened. But they haggle for downside protection and guaranteed returns now when demand has slumped and a recession looms. I hear them say as FT quotes it “Private equity firms will no longer invest in straight public equity. If we do these investments, we want some kind of structured protection.” Here’s another from Sri Rajan, Head - PE practice, Bain & Co, India: “Given the current investment climate, the existing Pipe model has lost favor among private equity funds operating in India. Understandably, firms are now looking to invest in ways that offer them downside protection.”
O.k, some late wisdom that. It dawns only when PE investments go deep under water (Blackstone’s $165 M in Gokaldas Exports now down by 51%, it's $150 M exposure in Nagarjuna Construction is down by 69%). So is PIPE investments made by Warburg Pincus, Apax Partners and General Atlantic. Recently one of my clients in infrastructure space sought a valuation of 15x multiple (it used to be valued at 35x earlier which it felt was too low), the PE fund didn’t budge. They insisted the project be valued at 5x. But when market had been at its peak and PE multiples of 50x were offered for companies yet to find as much as a name, they hardly batted an eyelid and emptied their coffers.
So it’s a strange kind of logic, PE investors follow. [Mr. Bernard Shaw has been perceptive, ain’t he?]. Blame it on their B-Schools and chill out...

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