Blackstone Group LP's India head said on Wednesday the private equity firm is considering an infrastructure fund, as the industry and the companies that serve it offer excellent value, particularly in India.
Akhil Gupta, chairman of Blackstone India, said he expected it would be three months or so before the firm would be ready to deploy funds, and was bullish on the infrastructure sector's prospects in India, which is desperate for new road, water, and energy projects.
"We are thinking of raising an infrastructure fund ourselves," Gupta said at the Reuters India Investment Summit, though he cautioned that plans were very preliminary and only in discussion phase.
"Infrastructure stocks have come to a point they are valuable but we need to be cautious," he said. "I think we have got to wait for another three months to see how it unfolds."
Gupta was less excited about the near-term prospects of India's media sector.
"The bad news in the media sector is not fully reflected," he said, explaining he expected India's highly fragmented and competitive media business to suffer from a slump in advertising sales.
Challenges facing India's infrastructure sector are reflected in prices, said Gupta, who before joining Blackstone in 2005 held senior positions at India's leading private sector firm, Reliance Industries. The Mumbai office was the New York private equity giant's first entry into Asia.
One investment he mentioned was the $65 million Blackstone paid for a minority stake last November in Indian engineering firm MTAR Technologies Pvt Ltd.
MTAR makes machined parts for nuclear, space and defense projects, as well as engine and structural components for aerospace and defense applications.
Gupta said the company's revenues and cash flow were up five fold since the deal, not necessarily because of what Blackstone has done but because of the company's own position in the market.
Blackstone has announced 7 deals in India worth $1 billion so far. Two of the deals were majority stake purchases.
In February, it paid $85 million for a 10.4 percent stake in Allcargo Global Logistics. Blackstone paid $150 million for a 12.5 percent stake in Nagarjuna Construction in Aug 2007, a construction services company whose growth is tied to the infrastructure boom, Gupta said.
India's benchmark index has fallen by more than half in 2008 as the deepest global financial crisis in 80 years and tight liquidity at home has starved Indian firms of capital.
Gupta said the drop in global oil prices reassured him that India's economy would weather the financial crisis.
With a combination of sustained lower oil prices and a stable government after elections due in the first half of next year, "India will be a shining star to the whole world. Low inflation, low rates, growth, and the pressure on the rupee will go away," he said.
Until then, however, firms were expected to look to outside companies, investors and private equity firms for capital while credit stayed tight and the economy slowed.
On Monday, JP Morgan's India investment banking head said arranging private equity deals was one of the main focus areas for her firm.
Private equity and venture capital investments in India rose to $9.7 billion in the first nine months of this year from $9.5 billion a year earlier, according to Venture Intelligence, a modest uptick in an otherwise brutal global deal climate.
Private equity firms such as Carlyle Group, CVC Capital and Warburg Pincus have been investing in India for years, seeking to capitalize on the country's economic growth and huge consumer market.
Kohlberg Kravis Roberts & Co KKR.UL last week said it had hired Citigroup's South Asia head, Sanjay Nayar, to head up its first Indian office.
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