VCCircle

The number of suitors for the Hutch stake in India is growing. The latest to enter the fray is the Indian partner itself - the Ruias of Essar. The Ruias hold about 33 per cent stake in Hutchison Essar, and acording to Business Standard, the Mumbai-based diversified business group is toying with the idea of picking up its majority partner's stake.

Hutchison holds a 52 per cent stake directly, while another 15 per cent is held by Analjit Singh of Max India and Hutch CEO Asim Ghosh together. The stake held by Hutch alone could be valued at around $7-8 billion, which means Essar will have to raise funds or strike partneships to pick up the stake.

There has been interest from global buyout funds like KKR, Texas Pacific Group, Blackstone and even Reliance Communications.

What is interesting is even Bharti Tele-Ventures may look at buying the Hutch stake. "If the Ruias aproach us, then we would think about it," Bharti Chairman Sunil Mittal told CNBC TV18. Which means Bharti can consider buying the Hutch stake only with the concurrence of the Ruias.

The Hutch asset sale is getting interesting with a variety of players entering the fray.

Related:

Now KKR In Talks With Reliance Com To Buy Hutch Assets In India

Blackstone, Texas Pacific, Reliance Com May Consider Acquiring Hutch Assets In India: WSJ

Hutch To Exit India? Will Essar-PE Firm Combine Buy Them Out?

There is a new twist to the Hutch tale. The Economic Times reports that buyout fund KKR is in talks with Anil Ambani's Reliance Communications (RELCOM) to buy out Hutch's wireless assets in India. The Wall Street Journal had earlier reported that buyout funds like Blackstone, Texas Pacific Group, and also Indian telco RELCOM were in talks to buy the Hutch stake in Indian telco Hutchison Essar, India's third-largest GSM operator with a subscriber base of 16 million.

“It is very preliminary as of now. There are a number of unknowns in a transaction of this type,” ET quotes an investment banking source. Hutchison seems to be planning to exit Indian market since it's not sharing a great relationship with its Indian partner Essar. Also, Hutch can cash out at a price of $8 billion for its two-third stake in Hutchison Essar. The Indian partner Essar owns 33 per cent stake.

The report also says that Texas Pacific Group and Malaysia's Maxis had made a bid last week for 100 per cent of Hutchison-Essar at an enterprise value of $13.5 billion. The bidders approached Canning Fok, chairman of Hutchison Telecom International, the parent of Hutchison Essar, who was in India on a brief visit, says ET. The bid was believed to be turned down.

There is definitely something cooking up.

Related:

Blackstone, Texas Pacific, Reliance Com May Consider Acquiring Hutch Assets In India: WSJ

Hutch To Exit India? Will Essar-PE Firm Combine Buy Them Out?

Idea Cellular Ltd plans to raise upto Rs 2875 crore ($641.7 million) through the IPO. Of which, a 15 per cent will be raised through a pre-IPO placement, reports Reuters. That's about Rs 431 crore ($95 million) that will be raised from investors pre-IPO. The IPO is managed by JM Morgan Stanley and DSP Merrill Lynch, with Citigroup and UBS as co-managers.

So far a few private equity investors have invested in Idea Cellular.

The latest was Sequoia Capital India's investment of $42 million for a 1.5 per cent stake in the Pune-based telecom company. Providence Equity Partners picked up close to 15 per cent for $400 million, while Chrys Capital invested about $100 million for a little less than 4 per cent stake. The other investors in Idea include TI TA Associates of UK, Citigroup Venture Capital International and Maquarie Bank of Australia. All this placement has happened at a valuation of $2.8 billion.

The proposed pre-IPO placement (15% of the issue) will be done at the IPO price. This is expected to be at 20 per cent premium to the private equity placement.

Clarification: Citing an Economic Times report, I had mentioned that Sequoia Capital India has paid more than what other private equity players have paid for their stake in Idea. It turns out that it is wrong. Sequoia has indeed picked up the stake in Idea at the same valuation ($2.8 billion) as Providence and ChrysCap.

Related:

Sequoia Capital Picks Up 1.5% Stake In Idea Cellular

ChrysCapital Invests $122 Million In Idea Cellular; Providence Puts In $400 Million

GLG Partners Pick Up 8% In Idea Cellular For $213 Million: Report

Four Funds Pick Up 25% In Idea Cellular

Idea Cellular Files Draft IPO Prospectus; The Issue To Raise Rs 2,500 Crore

Who said the aviation business is not promising? Not in India at least, even though most of the market players are losing money. Investors are queueing up to invest in budget airline SpiceJet Ltd. The company's board has decided to issue shares on a preferential basis to investors to the tune of $80 million. Apparently the airline has got investment proposals worth $118.5 million from the investors. The potential investors include the Tata Group, private equity funds Texas Pacific Group Ventures, Istithmar PJSC and Goldman Sachs.

According to a report, Tata group firm Ewart Investments has offered to invest $16 million and Tata Investment Corp. Ltd $1.2 million (about 7.5 per cent . Texas Pacific has offered $30 million, Istithmar $25 million and Goldman Sachs $5 million. The shares have been placed at Rs 51.40 a share.

Dubai-based Istithmar currently holds 10 percent of SpiceJet.

This is interesting. Earlier, SpiceJet was planning to raise only $60 million through a plain vanilla equity sale. With the current interest, the airline upped its fund raising to $80 million. Spicejet has already raised money twice -- through a $80 million overseas convertible bond issue and a $12.5 million stake sale to Istithmar - since it began operations in May 2005, says Reuters.

SpiceJet had revenues of Rs 453 crore ($100 million) in the business year ending May 2006.

Coimbatore-based textile and apparel company KPR Mills has received private equity funding to the tune of Rs 105 crore from Blue River Capital, and joined by other investors Brandot International and Argonaut Private Equity, reports The Economic Times. KPR Mill, which has revenues of Rs 450 crore, owns spinning, knitting and garment making facilities.

Brandot International is owned by Martin Trust, a leading serial investor in the global apparel and textile space. This will be his first investment in India. There are also reports of Trust forming a 50:50 JV with south-based Bannari Amman in apparel exports space.

KPR Mills is now preparing to go for an IPO.

The funds will be used to part-fund its Rs 500-crore expansion, while the rest of the funds have been raised as a loan under the Technology Upgradation Fund Scheme (TUFS). The company is now working on doubling its spinning capacity from the existing 1,10,000 spindles. It will also set up a new garment making facility in Coimbatore, which is expected to boost its Rs 140-crore export business.

Blue River Capital is founded by Shujaat Khan and affiliated with Edelweiss Capital. In April, Blue River invested $10 million in Aurangabad Electricals. Argonaut Capital, backed by American billionaire George Kaiser, recently invested $10 million Koutons Retail, a Delhi-based men's retail company.

UTI Venture Funds (UTIVF) is the largest state-owned private equity fund with about $220 million under management. Its latest Ascent India Fund with a corpus of roughly $170 million was launched in April 2005. UTIVF has been seeing an increased dealflow in the last few months. From April 2006 onwards, the Bangalore-based fund invested in four companies - CCCL (led a round of $27 million alongwith other investors), Koutons Retail ($12 million in two rounds), Laqshya Media ($10 million) and Vallabhdas Kanji ($6 million). They are going to close a few more deals very soon and by then half of the second fund would have been deployed.

UTVIF claims about 35-40 per cent IRR for its first fund. It's worth noting since I can't remember any fund of that vintage (year 2000) let alone clocking that kind of returns but even escaping unhurt. ChrysCapital and Citigroup Venture Capital had written off several investments. UTIVF on the other hand took haircut in three investments from its first fund, but did have some winners like Subex Systems where they are 15 times in the money and FourSoft 4.5 times.

Although from a PSU lineage, UTI Venture Funds is making the right moves and will find a place among the top private equity funds in the country as they are close to making a few liquidity events.

I caught up with Raja A Kumar, MD & CEO, UTI Venture Funds Management, last week. Excerpts:

How much money do you manage currently? Any plans to raise a new fund?

We manage a little over $220 million. While our Fund I was a smaller fund, Fund II is bigger... We would like to complete a significant part of Fund II before embarking on Fund III.

What is your current focus of investment? I assume you have shifted from an early stage to mid-stage and even mature businesses?

We are a mid-market focused growth capital fund. While we initially made a few early stage investments from Fund I, most of the investments were in growth capital space. So from that respect, there is no change in focus. We have continued with the same focus for Fund II, only we have enhanced the ticket size and broadened the sectoral focus.

UTI Venture Funds has been very active in the last two months. You invested in Vallabhdas Kanji (a spice exporter), an outdoor media company Laqshya Media and an apparel retail company Koutons Retail? Could you give us sense of your investment thesis for these companies and how do you intend to exit them?

Yes we have been busy and over the last 18 months we have made 11 commitments. All these companies are on a high growth path and would grow through an appropriate combination of organic and inorganic means. Our capital will enable them to achieve this objective. All these companies are expected to provide us excellent opportunities to exit through listing in the medium term. CCCL and Koutons are expected to go public next year.

There is a lot of competition for deals in the private equity space. Do you think it’s driving up the valuations?

While the competition is hot and has driven up the valuations, this has also helped in increased awareness and thus a concomitant expansion in the landscape. We are anyway a long term player and expect to witness such cycles in future too. Market corrections would allow us to correct the overall valuations of our portfolio. Additionally, the underlying growth potential will help a great deal in delivering returns for our fund, inspite of higher valuations, in certain cases. However, at the same time, I need to emphasise that we are not known to pay the high valuations. Most investments are on mutual comfort and not on competitive basis.

We are seeing high valuations across the sectors more being in technology space. Paying high entry valuation will work provided the investee company is on high growth path.

What is the status of your first fund? How many exits have you had so far, and what were the returns?

Our success ratio with Fund I was very good. We have made good money on 13 out of 17 investments. Our initial focus was on divesting our positions from companies whose performance was either average or below par. We continue to hold onto most of our winners, which we will liquidate at an appropriate time. Notably, we have already completed a significant part of capital redemption of Fund I, yes without touching most of our winners. Thus we are extremely happy with the performance of Fund I. Basing on the performance this fund will be the one of the top performers of vintage 2000 funds.

I assume that you had a few winners from the first round like Subex Systems, Divi’s Labs, and FourSoft. You got them early on. Do you expect to get similar picks for your private equity portfolio?

As I mentioned earlier, we are a long term player and are bound to witness cycles in the market. While sometimes we may pay more than what we might want to, we will get the opportunity to correct the same in some other investment. Since we back growth, we do not discriminate too much on the basis of market prices. For us fundamentals and the passion of the promoter/management teams are a bigger determinant. Moreover, we have invested in most of the companies at single digit multiples (on 12 months forward earnings) in most of the Fund II companies. Thus we stand to make decent returns even in case of an exit in a depressed market.

Will you ever do early stage deals now that the focus has shifted to private equity?

As I said our focus shift was about 4 to 5 years back and not now. We continue to retain our focus. We have selectively looked at early stage companies. However, it will take a compelling opportunity to tempt us to invest. We are extremely exit focused and seldom allow our hearts to dictate investment decisions.

While a whole host of private sector companies entered the booming aviation business in India in the last three years, the country's top business house Tatas were missing in action. This is despite the fact that Tatas owned Tata Airlines (set up in 1932), the previous avtar of Air India. Its joint venture plans with Singapore Airlines also did not take off. But now it looks like Tatas also want a share of the pie - especially in the domestic aviation business.

The Mumbai-based business house is believed to picking up 10 per cent stake in the low-cost airline SpiceJet.

The investment will be made through Tata group’s financial arm Ewart Investments, and may be worth about Rs 100 crore ($22.5 million), reports The Economic Times. The SpiceJet board is meeting in Delhi on Monday to consider the allotment of preference shares to Ewart. The transaction may be done at a price close to Rs 51 per share. On Friday, SpiceJet shares closed at Rs 53.45, up about 5 per cent. It looks like the market had a wind of the deal.

Tata's investment is reportedly a financial one, and not strategic. So going by that, Tatas are not really entering the aviation business, but is acting like a private equity player. Ewart Investments is a subsidiary of Tata Sons.

In a related development, SpiceJet is planning to raise about $60 million from private equity firms. So Tata's investment is only part of it, and more is to come. SpiceJet had raised $70 million through an FCCB issue. Last December, Istithmar PJSC, the private equity arm of the government of Dubai, also picked up 3.3 per cent stake in the company for around $50 million.

Yatra Capital Ltd, an India-focussed real estate investment company, has raised €105 million from the Euronext exchange in Amsterdam. Yatra would be the first Indian real estate company to list in Euronext.

Yatra Capital, founded by ex-HSBC executive Ajoy Veer Kapoor, has investors like Morley Fund Management, Fortis Investments and Standard Life. Yatra plans to own and develop residential, commercial and retail properties in India. Its primary focus will be on tier II and tier III cities. It will also consider select tier I opportunities.

Saffron Capital Advisors, an asset management advisory firm dedicated to Indian real estate, will act as fund and asset manager to the company. The law firm Simmons & Simmons team was an advisor to Yatra. ABN AMRO was involved as a listing agent and Fairfax IS Plc was a placing agent.

It's not Yatra alone, there were other companies like Ishaan Real Estate who have raised finance abroad. Ishaan, for instance, recently raised $340 million from London's Alternative Investment Market. Hiranandani Constructions is planning a $500-750 million float in AIM. Unitech also plans to raise about $700 million from AIM. Bangalore's Embassy group is looking to do a float in Singapore early next year.

Related:

Raheja's Ishaan Real Estate Raises $342 Million From London Stock Exchange

Hiranandani Constructions Too To Raise $750 Million From London's AIM

Unitech To Raise $700 Million From London's AIM

Bangalore's Embassy Group Plans Singapore IPO For Its Proposed REIT

Texas Pacific Group Ventures, the venture and growth capital fund of Texas Pacific Group, is focusing on India. TPG Ventures has appointed former Intel Capital Managing Director Varun Kapur (right) as its Partner in charge of leading investments in India. Kapur will work out of Mumbai and will lead the firm's expansion stage, smaller buyouts and growth-oriented investments in India, with investments up to as much as $75 million.

Kapur was earlier managing the Asia-Pacific region investments for Intel Capital.

TPGV has a corpus of over $1 billion and is focused on growing technology, biotechnology and consumer companies. TPGV's website says that it "utilizes several approaches including venture capital, growth equity, leveraged buyouts (LBO’s) and private investments in public equities (PIPE’s) on a global basis.

TPGV has offices in the US (San Francisco and Menlo Park), China (Hong Kong) and India (Mumbai) and extended coverage through Texas Pacific Group and TPG/Newbridge offices in London, Japan, Korea and Australia.

(Hat tip to Mohit Malik of Anoova Consulting)

Here is the biggest deal in Indian telecom if it goes through. The Wall Street Journal reports (under the sub wall) that buyout funds Blackstone and Texas Pacific Group are "considering a possible acquisition" of the stake of Hutchison Telecommunications International in the Indian telecom business Hutchison Essar. The deal could be as big as $8 billion, Journal reports.

The report also says that Blackstone may join hands with Reliance Communications Ltd for acquiring Hutch. The report is however unconfirmed, while a Hutch spokeswoman refused to comment.

Hutchison Telecommunications controls about 67 per cent of Hutchison Essar, while Essar Group, the Indian JV partner, controls 33 per cent. Hutch, a GSM player, operates in 16 of the 23 telecom circles in India. It has over 18 million mobile subscribers in India.

The Reliance Communications angle is interesting. The company is toying with the idea of entering GSM service nationally, and this could be a good strategy to acquire the national presence in one shot ratjer building it ground up. Reliance Communications is a CDMA player, while its subsidiary Reliance Telecom is a GSM player in essentially eastern states.

(Hat tip to Vijay)