Are private equity investors going slow on India?

Between 2013 and 2015 they PEs increased their exposure little by little and in the first quarter of 2015 they ploughed in USD 4704 million. Right now, their total India exposure is down to USD 1054 million in the second quarter of 2016.

Private equity investors have had a love-hate relationship with India. Just in the last three years, they have yo-yoed a lot in their attentions to India. Between 2013 and 2015 they were upbeat on the Indian subcontinent. The period saw the PEs increasing their exposure little by little and in the first quarter of 2015 they peaked ploughing in USD 4704 million. The same quarter witnessed a total of 112 deals being inked. However, in the last nine months the PEs lost interest. Their total India exposure is down to USD 1054 million in the second quarter of 2016 which had only 52 transactions taking place.  The second infographic shows how internet/technology received the maximum investments of USD 1110 million till date beginning 2016. Business services and transportation clocked the least equity inflows with USD 17 million and USD 12 million, respectively, out of a combined USD 2139 million for the period.

Private equity players upbeat on commercial space

Private equity (PE) funds are looking to snap up more office space, with the segment having done well in 2015 and in the hope REITs (real estate investment trusts) will soon take off. Marquee players like Blackstone have already accumulated a portfolio of close to 30 million square ft of commercial space.

Private equity (PE) funds are looking to snap up more office space, with the segment having done well in 2015 and in the hope REITs (real estate investment trusts) will soon take off. Marquee players like Blackstone have already accumulated a portfolio of close to 30 million square ft of commercial space. Now others such as Kotak Realty, Piramal Asset Management, Brookfield Asset Management, Macquarie and Milestone are shopping for property.

If industry sources are to be believed, Kotak Realty might soon team up with a Bangalore based company scooping up ten million square ft in the process. Piramal has set aside `5,000 crore to invest in commercial properties in FY17 while Milestone is in the process of raising `500 crore to do the same.

However, while money will move in, risk may not. Experts say purchases will be funded via structured debt rather than equity and while a few pedigree players may attract equity, fund managers will be largely cautious. Khushru Jijina, MD, Piramal Fund Management confirms his firm will fund projects primarily through construction financing and senior secured debt. Players like Piramal can be more competitive than banks who charge builders interest rates in the early teens.

“We can offer customised repayment schedules, flexible interest servicing and work around other rules that banks are forced to to adhere to,” Jijina said.

Last year, 72% of total transactions were financed by structured debt with the residential piece accounting for the bulk of the money. This time around more mezannine financing is likely to be seen in the commercial real estate segment. That unfortunately is not good news for a whole host of companies which, according to Rajeev Bairathi, ED, capital markets, Knight Frank India, looking to deleverage and need equity.

Meanwhile, a clutch of smart developers — K Raheja Corporation, DLF, Divyashree Developers and Prestige Estates — is quickly consolidating positions in projects so as to extract a better prices from PE funds. There have been at least two instances, in the last few months, of promoters buying out partners and putting together a pool of income generating assets. Such portfolios, they feel, will be more eligible for both PE players and a REIT listing.

Meanwhile, given how investors such as Blackstone, CPPIB, GIC, QIA have been actively scouting for commercial developments, cap rates in the sector have come off, driving up valuations. Cap rates, industry experts say, have been falling over the past two years from approximately 11% to 9% for Grade A developments, making commercial real estate an expensive proposition. Vikas Chimakurthy, director at Kotak Realty points out, however, that while cap rates for built-up projects have fallen, there are opportunities in acquiring properties that half- built and in need of last mile funding. According to the management at Milestone, it will choose assets that can deliver a 12% IRR on investments and rental yields of 15% over the next three years making Bangalore and Mumbai the best hunting grounds.

CBRE recently reported that 38 million sq. ft of gross prime office space was absorbed in 2015, the highest in any year. Bangalore led the way followed by by NCR. Rental values in the CBDs (central business districts) were stable, with the exception of Pune and Bangalore, which saw an appreciation between 5% and 20% annually in some micro-markets. According to Cushman and Wakefield, in value terms, 30% of the total USD 3.96 bn that was invested into real estate by PE funds was made in the commercial sector.

Sun Capital

Waning hopes: Earnings drought in India is just getting extended

Third quarter earnings season is now running in full swings, with results of bluechips such as TCS, Infosys and banks such as IndusInd Bank already out.

Expectations from the quarter are already low, given the prevailing concerns globally and their impact on the domestic economy. Metldown in energy prices, delays in reforms and, thus, capex cycle, and weak demand in rural India, are all weighing in on the prospects of a rapid economic revival.

But if analysts were to believe, the wait for revival may just get extended and the two-three quarters, the time investors are expecting earnings to take to revive, could easily turn to two years. Analyst though expect falling energy prices may keep lifting overall profit margins going ahead.

India Ratings and Research believes that corporates will take at least two more years to report accelerated earnings and reach the peak level achieved in 2011-12.

In a recent report brokerage firm Ambit Capital in a recent report had predicted earnings growth to remain weak during FY2016 and FY2017.

"Earnings per share (EPS) growth in FY16 and is FY17 likely to remain in single digits (just as in the post 1991 world), we expect the Sensex to generate single digit returns in FY16 and FY17," said brokerage.

Ambit Capital pointed out India has witnessed healthy GDP growth averaging 10 per cent in nominal terms over the last six quarters, but this has not resulted into higher earnings per share (EPS) growth for the Nifty companies.

The reason has to do with three profound structural changes taking place in India: The 'Modi, Rajan and Technology' resets.

"The correlation breakdown between GDP growth and corporate revenues and earnings for the Nifty 50 companies, in our view, is a reflection that a significant portion of the economic growth pick-up is no longer being exploited by listed large cap companies. This, in turn, is because India is being fundamentally changed by an inter-play of the three dominant forces at work in the country today: Modi, Rajan and Technology," said Ambit Capital in a research report.

Ambit Capital report said that Prime Minister Narendra Modi is calling time on the traditional model of subsidy funded consumption growth and crony capitalism driven capex growth in India. So, the incumbents that have thus far enjoyed high earnings growth on the back of corruption and artificial suppression of competition will face increasing pressure on their revenues and earnings.

On the other hand, The RBI Governor Raghuram Rajan is increasing competition for traditional private banks through the introduction of new banks, deepening of corporate bond markets, the resurrection of PSU banks and reducing regulatory arbitrage between banks and NBFCs, the report cited.

Technology is the third factor playing spoilsport for some sectors such as IT and retail, said the report, adding, "New innovations are weakening the traditional offering of Indian IT services firms while increasing competition for retail lenders and B2C companies," said brokerage.

Meanwhile, India rating expects ebitda growth of BSE 500 corporate to range between 12-14 per cent for FY17, under a hypothetical scenario of fiscal loosening, compared to the 5-6 per cent growth expected for FY16.

Rating agency believes investment and commodity prices linked sectors will post muted EBITDA growth in FY17. Growth in sectors such as metals and mining (including volumes) and upstream oil & gas sectors would remain muted despite the base effect.

"However, the downstream oil & gas (refining) sector is likely to exhibit positive growth driven by the higher volume offtake of petroleum products and sustained refining margins. The top five sectors including auto and automotive suppliers, power (generation, transmission and distribution) and telecom contribute 55-60 per cent to the overall EBITDA of BSE 500 corporates, and any meaningful recovery in overall corporate profits would have to be driven by these sectors," said Ind-Ra.

Sun Capital

Analyzing ConocoPhillips’ Return on Equity (COP, XOM)

ConocoPhillips (NYSE: COP) reported return on equity (ROE) of -2.04% for the 12-month period ending in September 2015. This represents a sharp drop from its 2014 ROE of 13.21% and an even bigger drop from its 2013 figure of 18.3%. The company has a trailing 12-month net loss of $1 billion, down sharply from a net income of $6.9 billion in 2014. Its shareholders' equity, which stood at $44.2 billion as of September 2015, has declined more modestly. It was $51.9 billion at year-end 2014.

ROE Analysis

ConcoPhillips' precipitous drop in ROE from 13.21% in 2014 to -2.04% for the 12-month period ending in September 2015 came as a result of a commensurately sharp decline in net income. Like all large-cap oil and gas companies, ConocoPhillips has struggled amid a crash in oil prices throughout 2015. Oil, which traded as high as $147 per barrel for a time in 2008, fell below $30 per barrel in 2015, its lowest price since the 1990s. The company's main competitors, Exxon Mobil Corporation (NYSE: XOM) and BP PLC (NYSE: BP), also saw their net incomes and ROE fall considerably from 2014 to 2015 -- though Exxon Mobil managed to keep both figures positive.

DuPont Analysis

A typical ROE analysis looks at net income and shareholders' equity separately and evaluates the effect that each has had on changes in ROE. The DuPont analysis, by contrast, breaks ROE into its constituent components of net margin, asset turnover ratio and equity multiplier and seeks to determine the influence each has on ROE.

ConocoPhillips' net margin for the 12-month period ending in September 2015 was -2.82%, down from 12.37% in 2014. A February 2016 press release from the company acknowledges that low commodity prices have squeezed its margins and, as a result, it is taking active steps to bring expenditures in line with its reduced revenue. It cut its quarterly dividend from 74 cents per share to 25 cents per share, lowered capital expenditures by $1.3 billion and reduced operating costs by $700 million.

Its competitors suffered falling margins as well, with Exxon Mobil's dropping from 7.89 to 6.73% and BP's declining from 1.05 to -3.06%. ConocoPhillips had the largest drop of the three, making it reassuring that the company has acknowledged the root of the problem and taken quick and decisive steps to address it.

ConocoPhillips' trailing 12-month asset turnover ratio is 0.32. This figure, which measures how efficiently a company generates revenue from its assets, has fallen steadily from 1.62 in 2011. Its influence on ROE appears moderate, though not as pronounced as that of net margin. Exxon Mobil and BP, both with asset turnover ratios of 0.85, have seen their asset turnovers slow down as well in the wake of the oil price collapse.

ConocoPhillips' equity multiplier for the 12-month period ending in September 2015 is 2.4. This figure has remained steady for a decade. While the company's equity position has fallen slightly, the company has also reduced its debt load, keeping the ratio between the two consistent. A silver lining for ConocoPhillips amid the oil collapse is, at least, the company is not overleveraged. Its equity multiplier sits squarely between those of Exxon Mobil (2.0) and BP (2.7).

Conclusions

ConocoPhillips' steep drop in ROE resulted from severe declines in net income and net margin, both symptoms of broader oil market malaise. On the bright side, the company has come forward with the steps it is taking to counter its declining revenue resulting from low oil prices, which involve slashing expenditures in several areas, such as dividends, capital expenditures and operating expenses. Every large-cap oil and gas company has suffered in the wake of the oil crash. Investors in ConocoPhillips should at least be comforted that the company is being proactive in responding to it.

Govt clarifies safe harbour norms for offshore funds

Buyout firms will not benefit.

Reuters

The government has clarified the so-called ‘safe harbour’ norms for offshore funds in a move that benefits the private equity and venture capital industry.

The Central Board of Direct Taxes (CBDT), in a notification earlier this week, introduced a look-through provision to determine the number of investors in a fund to qualify for the safe harbour and stipulated 18 months’ time for new funds to satisfy the norms.

It said an approval committee that is being formed will determine the eligibility of the managers of offshore funds to avail safe harbour benefits. Those who want to avail such relaxations need to apply to this committee.

The notification makes it clear that the offshore funds that seek to control an Indian business cannot avail safe harbour benefits. For that purpose, it stipulates that funds which have more than 26 per cent voting rights in an Indian company will not be considered for safe harbour provisions.

This means that buyout firms won’t benefit from the government’s move. Also, many large PE deals involve over 26 per cent stake. So this may lead PE firms to make co-investments with limited partners or other PE firms.

While defining the safe harbour norms for an offshore fund, the rule that stipulates a minimum 25 investors has been redefined. A look-through provision has been brought in wherein the rule will be relaxed for funds that have institutional investors with a large number of investors/ limited partners.

"About 85 per cent of the $20 billion of VC/PE investments made in India in 2015 were made by offshore-based asset management companies. For most offshore funds, this move greatly eases doing business from a tax certainty perspective," said Gopal Srinivasan, chairman and managing director at TVS Capital and vice chairman of the Indian Venture Capital Association.

Subramaniam Krishnan, partner, tax and regulatory services, EY, said that while the provisions largely appeal to fund managers of public market-focused foreign institutional investors, PE and VC players will also benefit from these rules.

Industry executives say the government’s move will encourage many Indian fund managers of offshore funds, who were operating out of overseas locations such as Hong Kong and Singapore, to relocate to India.

“Directionally, the issuance of the guidelines by the government is an important step forward in enabling the regime for domestically managing foreign capital, something which countries like Singapore and the UK have done so well,” said Tejas Desai, tax partner for financial services at EY.

“The guidelines provide some important clarifications in relation to the qualifying conditions for the fund like the manner of determining resident Indian ownership and permitting a look-through approach in determining the number of investors in the fund,” he added.

According to Desai, the guidelines provide that the offshore fund can seek a prior confirmation of its eligibility by making an application to the CBDT, something which should give certainty of tax outcome for the fund. 

“Over the long run, this means more opportunities for Indian talent within both domestic and global asset management firms to play an expanded role in managing foreign capital,” 

Sun Capital

Flipkart denies report of sale talks with Amazon

Talks between both firms were reportedly held to sell Flipkart for $8 billion.

Flipkart, India’s largest online marketplace, has strongly denied a newspaper report that said they had exploratory talks with Amazon in the last quarter of 2015 for possible sale. 

Taking to Twitter, Sachin Bansal, Executive Chairman of Flipkart put out this cryptic tweet.

Citing several sources in the investment community, The Economic Times reported on Wednesday that Amazon had made a preliminary offer of up to $8 billion to acquire Flipkart, almost half of its previous valuation of $15.2 billion. The newspaper said they have spoken to three sources who were top executives in venture capital and private equity firms.  

ALSO READ: Flipkart opposes entry tax by states: Why it is a fight to the finish

Meanwhile, another source informed that Amazon had offered a little over $5 billion for Flipkart’s e-commerce business and $3 billion was pegged for the company’s logistics business.

The talks between both the companies, reportedly held in the last quarter of 2015, went cold after the offer was perceived to be too low. The sources also told the newspaper that there was no reason to believe that a deal will be struck or that the talks were still ongoing between them. 

Valuation woes

The development comes at a time when Morgan Stanley has marked down its investment value in the online marketplace by $4 billion to $11 billion. 

Meanwhile, Flipkart is also currently in talks with Alibaba to raise $1 billion, but the Chinese e-commerce player was said to be investing at a lower valuation than $15 billion.

Private equity investment hits record $19.5 billion in 2015: report

PE investments during the Oct-Dec period totalled $ 3.9 billion, taking the deal value for the year 2015 to $19.5 billion — the ‘best ever’ for India.

New Delhi: Private equity investments during the October-December period totalled $ 3.9 billion, taking the deal value for the year 2015 to $19.5 billion — the “best ever” for India, says a report.

According to the PwC MoneyTree India report, a quarterly study of PE investment activity based on data provided by Venture Intelligence, the fourth quarter of 2015 saw investments worth $3.9 billion, a 12% drop as compared to the same period of 2014. However, despite the drop, the stellar performance throughout the year helped 2015 become the best year ever, with a total of $19.5 billion worth of PE inflows across 159 deals.

“India’s macros are looking good, with the current account and fiscal deficit at acceptable levels, a relatively stable rupee, inflation at below 5% and, most importantly, a declining interest rate regime. This should encourage private investment as demand picks up,” PwC India leader, Private Equity Sanjeev Krishan said.

Sectorwise, the information technology and IT-enabled services (IT & ITeS) continued to be the biggest sector, as this space attracted $1.3 billion in 93 deals, followed by the banking, financial services and insurance (BFSI) sector that attracted $910 million in 10 deals.

“In 2015, sectors such as banking, insurance and telecom saw the stabilisation of their business and opened up their technology spend over the year, thereby driving the growth of the Indian IT & ITeS industry,” PwC India leader - Technology, Sandeep Ladda said.

“Media & entertainment sector was a surprise, attracting investments worth $414 million,” the report said.

Regionally, Mumbai attracted $1.9 billion, while Bengaluru was a distant second with investments worth USD 733 million. Going forward, Krishan said, “financial services, technology and healthcare continue to see sustained activity in 2016, while e-commerce fund raising may get challenging this year at least in the near term”.

He added that the Indian Government’s focus on making it easier for foreign investors to do business in India will help from a perception standpoint and needs to be backed by real reform.

TOPICS: PRIVATE EQUITYINVESTMENT

IDBI Federal Life Insurance buys office space worth Rs 111 cr in Marathon Futurex

In one of the major office space transaction, IDBI Federal Life Insurance Company Limited has bought commercial space worth over Rs 111 crore at Marathon Futurex in Lower Parel in Mumbai. The company has acquired around 61,720 sq ft office space spread over two floors at the IGBC’s Gold rated Green Building. The deal was registered last week after completion of all formalities.

The 450 employees of IDBI Federal Life Insurance will occupy the offices on 22nd and 23rd floors of the tower. The deal works out at around Rs 18000 per sq ft and falls within the ongoing property rates for outright transactions. Rates in Lower Parel are in the range of Rs 18,000-20,000 per sq ft based on the profile and facilities offered in commercial complexes here.

Mr.Mayur Shah, Managing Director, Marathon Group said, “This is one of the biggest commercial realty deals in the recent time which instills the hope that commercial real estate is on track.”


He added, “Among the biggest commercial real estate deals that have taken place in last couple of months, maximum deals have taken place in Marathon Futurex in Lower Parel. The reason is the distance of railway stations from the iconic building and the gold rated green building with amenities and facilities that are at par with international standards. With increasing standards Indian corporate houses and entry of multinationals, Marathon Futurex is the apt office space solutions for these companies.”

Sun Capital

Reforms in India will be slow, tedious: Morgan Stanley

Experts said domestic woes, including ballooning NPAs reported by banks and weak quarterly numbers in various other sectors, also added to the market weakness recently.

Big bang reforms will not be the operating template for India and the process will be a 'slow and tedious one', says a Morgan Stanley report.

The global financial services major said that the recently announced Budget for 2016-17 has proved once again that major reform initiatives will not be the operating template for the country.

"Reforms in India will be a slow and tedious process, requiring the buy-in of the opposition and the bureaucracy," it said. Since the beginning of this year, Indian markets have seen heavy volatility largely owing to high fluctuations in global markets led by the Shanghai Composite and domestic events such as the Union Budget, it said.

The Indian equity markets have seen extreme weakness due to various negative factors, including global economic slowdown fears, falling crude prices, worries related to Chinese economy and muted quarterly earnings.

Experts said domestic woes, including ballooning NPAs reported by banks and weak quarterly numbers in various other sectors, also added to the market weakness recently. Meanwhile, the index slumped to its lowest level in 21 months, when the Sensex crashed 807 points to drop below the 23,000-mark on February 11, this year.

"Moreover, what was evident once again this year, is that while India may be in a relatively better position based on external macro indicators compared to 2013, the correlations with global markets always rise disproportionately during periods of heightened uncertainty in other parts of the world," the report added.

Sun Capital

PE inflows from foreign funds in real estate up 33%

Total private equity investments from foreign funds in Indian real estate increased 33%, from $1,676 million (around R11,306 crore) in 2014 to $2,220 million (around R14,974 crore) in 2015, according to latest findings of global real estate consultancy Cushman & Wakefield.

Total private equity investments from foreign funds in Indian real estate increased 33%, from $1,676 million (around R11,306 crore) in 2014 to $2,220 million (around R14,974 crore) in 2015, according to latest findings of global real estate consultancy Cushman & Wakefield.

Owing to high property prices and high investment potential, Mumbai was accounted for about 35% of the total foreign investments in 2015, followed by Delhi NCR accounting for about 25% of the investments.

Sanjay Dutt, managing director, Cushman & Wakefield India said, “The three large cities; Mumbai, Bengaluru and Delhi-NCR continue to attract the highest investments in India and account for about 75% of these investments.

However, with government initiatives to de-stress these cities, relaxed FDI norms and focus to improve infrastructure across the country, other cities in India are likely to witness rise in PE investments going forward.”

The structured debt deals accounted for almost half (49% in value terms) of the total PE investments in 2015.

The structured deals strategy, though moderated due to increased competition, offers returns in the range of 15% – 17% to its investors.

Sun Capital

Crompton Greaves to sell overseas power unit to First Reserve for $126M

Crompton Greaves sells global power biz 

Parent Avantha Group has been selling non-core assets to cut debt. 

Crompton Greaves has inked a deal with US private equity fund First Reserve International to sell its global power business for an enterprise value of €115 million (about Rs. 846 crore). The sale will enable the company to reduce debt and focus on its faster-growing Indian businesses.

The company’s consolidated debt stood at Rs. 2,744 crore in FY15. Earlier, Crompton Greaves had announced the de-merger of its consumer products business into a wholly owned subsidiary Crompton Greaves Consumer Electricals.

Paring debt

In October 2015, the company sold its Canadian Power Transformer business to PTI Holdings Corp. These deals will help Crompton Greaves bring down its debt and expand its consumer products business.

On Wednesday, the Avantha Group company’s shares rose 8.81 per cent to Rs. 151.85 on a steady BSE, which closed 0.55 per cent higher.

On May 28, 2015, the company informed the stock exchanges that it had got non-binding proposals from “interested parties” from across Europe, North America and Indonesia. Later, on February 4, it said that discussions with a potential buyer were on.

Sun Capital

Paragon Partners launches $200-m India-focused mid-market PE fund

PE firm Paragon Partners has raised $50 million, marking the close of its $200 million growth fund, PPGF-I to invest in mid-size companies.

PPGF was established in 2015 by Siddharth Parekh and Sumeet Nindrajog. It is an AIF-Category II Private Equity fund, investing in high growth mid-market private companies in India.

The fund will focus on five key sectors — consumer discretionary, financial services, infrastructure services, industrials and healthcare services. The fund has an advanced pipeline of investment opportunities across these sectors.

Paragon Partners advisory board includes Deepak Parekh (Chairman, HDFC Ltd), Harsh Mariwala (Chairman, Marico Ltd & Founder Member), Sunil Mehta (Chairman, SPM Capital Advisors Pvt Ltd) and Jeff Serota (ex Sr. Partner at Ares Private Equity).

Siddharth Parekh, co-founder, Paragon Partners said: “We believe the next decade in India will see a strong resurgence of growth in key sectors such as manufacturing, financial services and infrastructure.”

The company said with its first close, PPGF-I has completed the funding of its first investment in Capacite Infraprojects Ltd, a leading EPC player based in Mumbai. Capacite is engaged in the construction of buildings (including super high rise structures) and factories, for large real estate developers, corporates and institutions.

The company currently has a footprint across Mumbai, NCR and Bengaluru regions and will look to grow this on a selective basis. Capacite is promoted by Rahul Katyal, Rohit Katyal and Subir Malhotra.

PPGF-I has seen significant interest from onshore and offshore institutions, family offices and HNIs. Domestic investors include India Infoline, Edelweiss Group and Infina Finance Private Ltd (an associate of Kotak Mahindra Bank Ltd).

Sun Capital

Indiamart raises Series C funding from Amadeus Capital, WestBridge & others

IndiaMART InterMESH Ltd, which runs an online B2B platform for small and medium businesses connecting global buyers with suppliers under the brand Indiamart, has raised an undisclosed amount in Series C funding led by Amadeus Capital.

WestBridge Capital, Accion Frontier Inclusion Fund (managed by Quona Capital) in addition to existing investor Intel Capital, participated in the funding round.

The capital raised will be used to further power its B2B business by scaling up Indiamart.com along with Tolexo.com, the online marketplace for businesses it launched in 2014, it said in a statement.

“The Indian B2B sector itself is set to grow by 2.5 times and touch $700 billion by 2020. Given the socio-political and environmental forces in the country, we foresee larger strides being taken by MSMEs in the coming years,” Dinesh Agarwal, founder and CEO of IndiaMART said.

VCCircle had earlier reported that Indiamart had initiated talks to raise as much as $200 million for Tolexo Online Pvt Ltd.

IndiaMART has put in an initial capital of around Rs 100 crore to build Tolexo. Tolexo competes with other B2B focused e-com sites such as Industrybuying.com.

Indiamart co-founder Brijesh Agrawal is the CEO of the firm. Early last year, the company roped in Harsh Kundra as co-founder and head of product and technology. It also counts Navneet Rai, co-founder, Inkfruit.com (merged with private label fashion e-tailer Zovi.com back in 2013), as a co-founder.

Backed by Intel Capital and Bennett, Coleman & Company Ltd (BCCL), IndiaMART offers products that enable SMBs to generate business leads and use business information (finance, news, trade shows, and tenders, etc.).

Indiamart was founded by Dinesh Chandra Agarwal and Brijesh Agrawal in 1996.

IndiaMART was styled on the lines of China’s Alibaba. However, while Alibaba ventured into B2B and B2C online commerce space and scaled up to become the world’s largest online seller, IndiaMART confined itself to matching buyers and sellers.

Indiamart claims that its platform enables over 24 million buyers to search from over 30 million products and get connected with over 2.1 million suppliers.

This is the first investment in an Indian company by UK-based technology venture capital firm Amadeus Capital Partners, which had entered the Indian market early last year. The venture capital firm, with some £500 million of assets under management, had appointed Bhavani Rana, who was the investment director at Intel Capital, as a partner to lead the team in India.

Founded in 1997, Amadeus Capital Partners has made more than 90 investments in industries ranging from communications and networking and software, to e-commerce from 10 funds totaling over $1 billion in cumulative commitments.

The firm, which was co-founded by Hermann Hauser, has a presence across the US, Sweden, South Africa, Brazil and now India.

“The investment fits Amadeus’ strategy of backing entrepreneurs benefiting from increased penetration of digital technology in emerging markets. Through its subsidiary Tolexo, IndiaMART is able to utilise data to help consummate transactions within the platform,” Rana said.

Sun Capital

Banks disburse over Rs 1.15 lakh crore under PM Mudra Yojana

Banks have so far disbursed over Rs 1.15 lakh crore under Pradhan Mantri Mudra Yojana (PMMY), financial services secretary Anjuly Chib Duggal said on Tuesday.

Micro Units Development and Refinance Agency Ltd (Mudra) focuses on 5.75 crore self-employed who use funds totalling Rs 11 lakh crore and provide jobs to 12 crore people.

Under PMMY, loans between Rs 50,000 and Rs 10 lakh are provided to small entrepreneurs.

"We have been working with Mudra. It has been a runaway success ... we are looking at Rs 1.15 lakh crore plus right now," she said at an event organized by MFIN here.

The scheme was launched by Prime Minister Narendra Modi in April last year.

Three products available under the PMMY are Shishu, Kishor and Tarun, to signify the stage of growth and funding needs of the beneficiary micro unit or entrepreneur.

Shishu covers loans of up to Rs 50,000 while Kishor covers those above Rs 50,000 and up to Rs 5 lakh. Tarun category provides loans of above Rs 5 lakh and up to Rs 10 lakh.

With regard to Banks Board Bureau, Duggal said, she would be meeting newly appointed chairman Vinod Rai this week to discuss operationalisation of this specialised body.

Last month Rai, a former CAG, was appointed head of Banks Board Bureau by Prime Minister Narendra Modi.

The bureau will give recommendations on appointment of directors in public sector banks and advise on ways to raise funds and mergers and acquisitions to the lenders.

There are 22 state-owned banks in India including SBI, IDBI Bank and Bhartiya Mahila Bank.

Besides, she said that there would be meeting of heads of the bank on March 22 to discuss about the recently launched crop insurance scheme by Prime Minister.

The crop insurance scheme scheme has already been approved by the Cabinet that would replace the existing ones to ensure that farmers pay less premium and get early claims for the full sum insured.

Investment Banking

Banks with strong networks will find takers

Mumbai The government, which recently stepped up focus on consolidating weaker public sector banks (PSBs), plans to reduce the number from 27 now to six or seven larger banks.While market capitalisation is a reflection of how the Street (investors, analysts, etc) views the bank's core fundamentals, the current state as well as the future prospects, a detailed look at the nine months' data of these banks provides some insight on their financial and business condition.In terms of asset quality, for instance, Indian Overseas Bank (IOB) and UCO Bank are the worst placed as they had the highest gross non-performing assets (NPA) at 12.6 per cent and 11 per cent, respectively, as on December 31, 2015.Dena Bank was the third on this list with gross NPA ratio of 9.9 per cent. 

However, if one adds the restructured assets, it would reflect the real asset quality picture of a bank. While the latest figures of total stressed assets for many banks are not available, the situation is not alarming, say analysts.Many PSBs also have low levels of capital to fund growth as well as any fresh losses that they may witness on account of bad loans. For example, while Dena Bank reported a net loss for the nine months ending December 31, 2015; its Tier-1 capital of 7.1 per cent is the lowest amongst its peers. United Bank's Tier-1 capital ratio, too, stood at 7.1 per cent in this period. Again, not all banks have declared their Tier-1 capital ratios as at the end of the December 2015 quarter.Notably, while PSBs consolidation will be largely driven by regulations, larger banks would not want to buy banks having low capital adequacy as well as poor asset quality, unless they prove to be of strategic importance. A key factor that will aid consolidation will be a bank's branch network. Historically, banks having larger presence in one region have bought smaller banks having stronger presence in another region. This ensures there is minimal overlap and the businesses are complementary in nature. The key hurdle and integration challenge, though, will be the employee unions in some of the PSBs that might resist such mergers and acquisitions. Nevertheless, with the advent of digital banking, the attraction of a branch network might not be enough.Analysts, however, believe most smaller and relatively weaker PSU banks could be potential takeover targets.Vaibhav Agrawal of Angel Broking says, "United Bank, IOB, OBC, Dena Bank, Vijaya Bank, Bank of Maharashtra, Andhra Bank, Indian Bank, Corporation Bank, among others, could be key takeover targets. The prime criteria will be complementary network, capital adequacy, asset quality, unions and actual integration of this merger."

Sun Capital

Sebi may peg M&A ‘control’ cap at 25%

Regulator’s move is aimed at removing ambiguities that companies confront during takeovers

Mumbai: The market regulator is set to clarify what the term ‘control’ means in the context of mergers and acquisitions (M&As) by pegging the shareholding threshold of an acquirer at 25%, two persons familiar with the development said.

The move is aimed at removing ambiguities that companies currently confront during takeovers, one of the two persons said, requesting anonymity.

Currently, the definition of ‘control’ under the Substantial Acquisition of Shares and Takeovers (SAST) Regulations, 2011—popularly known as the Takeover Code—doesn’t specify a threshold for shareholding.

“The numerical threshold for determining control is a globally accepted norm and should be the prescribed criteria along with the other factors which may signify control,” said Tejesh Chitlangi, a partner at law firm IC Legal.

The current takeover code states that an acquirer is in ‘control’ only if the board of the company that’s being acquired gives the former the right to appoint a majority of the directors, and have the final say on management and policy decisions.

The control of management or policy decisions is through shareholding or management rights or shareholders’ agreement or voting agreements.

“The Securities and Exchange Board of India board will clear a discussion paper on Saturday, which proposes to peg the numeric threshold of voting rights (shareholding) at 25% and giving protective rights to the acquirer,” said the second person, who also declined to be named.

A Sebi spokesperson did not respond to an e-mail seeking comment.

According to the discussion paper, there could be a framework for protective rights with an exhaustive list of rights that do not lead to acquisition of control.

These protective rights would be granted to the acquirer if they are cleared by 51% of the minority public shareholders.

“While it will be important to have a list which considers the commercial realities of merger and acquisition transactions, it may be a practically onerous task to have an exhaustive list that captures all the exempted protective rights and Sebi may need to grant an exemption on case-to-case basis,” the second person said.

According to Lalit Kumar, partner at J. Sagar Associates, there is currently no clarity on whether or not protective (veto) rights to investors will lead to control.

“This issue came up in the matter of Subhkam Ventures where Sebi held that protective rights lead to control. However, in appeal to the Securities Appellate Tribunal (SAT), SAT held that protective rights only lead to negative control and not positive control,” Kumar said.

“The matter went in appeal to the Supreme Court, which did not pass any order on this issue but said that SAT’s order will not act as a precedent. Therefore, presently, there is no decided case on this issue although the general view is that protective rights do not lead to control,” he explained.

Kumar’s reference is to private equity investor Subhkam’s 17.9% stake in MSK Projects. In 2007, when it bought the stake, Subhkam sought and received several so-called negative rights (such as the power of veto on key decisions). In 2008, Sebi ruled that this constituted control. On appeal, SAT ruled in favour of Subhkam. Sebi appealed the case in the Supreme Court which dismissed the case. However, because it said SAT’s order would not be a precedent, private equity investors are still not sure as to whether negative rights such as the one Subhkam had constitute control (such rights are common in agreements between promoters and private equity firms).

Some in the legal fraternity say the definition of control cannot be set in stone.

“The question of control is a nuanced one primarily of fact and secondly of law… Anything set in stone on defining control would lead to false positives and negatives. Sebi should adopt a more nuanced approach and go by court rulings as precedents,” said Sandeep Parekh, founder, Finsec Law Advisors.

Sebi first started reviewing the definition of control in 2014. Finalizing a proposed framework took longer than expected, nearly 20 months, in wake of the number of suggestions.

Sebi decided to re-examine the definition of control following the 2013 acquisition of a 24% stake in Jet Airways (India) Ltd by Abu Dhabi-based Etihad Airways PJSC for Rs.2,058 crore.

In May 2014, Sebi ruled that the deal did not attract the provisions of the Takeover Code, as it found a lack of substantial controlling powers with Etihad after the transaction.

Private Equity

Apollo Tyres enters two-wheeler segment with Acti series

To invest Rs. 4,000 cr on capacity expansion at Chennai centre.

Apollo Tyres has entered the two-wheeler segment with the launch of the ‘Acti’ series.

One of the leading tyre makers in the country, the company also said that it will invest Rs. 4,000 crore in the next financial year to expand its bus, truck tyres in Chennai.

Designed and developed at the company's global R&D centre in Chennai, the Apollo Acti series for bikes and scooters would cover nearly 85 per cent of the replacement market for two-wheeler tyres in India, the company said on Monday.

“The presence in the two-wheeler segment will help the company cement its leadership position in India. The Apollo Acti series will provide the best value proposition to our customers along with an enjoyable driving experience,” Onkar S Kanwar, Chairman, said here at the launch.

The two-wheeler category, which is growing at a CAGR of 8.5 per cent in India, holds huge potential for tyre manufacturers, the company said.

The company said it is looking at selling 1.20 lakh tyres each month initially, going up to five lakh tyres each month in the next two years. However, the company is sourcing the tyres from one of its vendors in Chennai and will decide on setting up a new plant or investment for two-wheeler tyres in the future.

“It depends on demand and branding of the tyres. We will be outsourcing the tyres for the next two years and we will decide on a greenfield or brownfield when the time comes,” Neeraj Kanwar, Vice-Chairman and Managing Director, told reporters.

To expand its existing tyre plants and capacities, Kanwar said Apollo will invest $600 million (around Rs.4,000 crore) next financial year to enhance capacity at its plants in India (Chennai) and abroad (Hungary).

He added that the company is also in the process of doubling the capacity of its Chennai plant to 12,000 truck and bus radials a day from 6,000 earlier.

The company’s shares closed at Rs. 170.35 on the BSE on Monday, up 2.65 per cent from the previous close.

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