BTS Investment Advisors, the Mumbai-based private equity firm focussed on small and medium enterprises (SME), is planning to raise its second sector-agnostic SME fund with a corpus of $200 million. It has started already raising its clean energy fund which has a target of $120 million. Once the first fund, BTS India Private Equity Fund I, is completely deployed, which is expected by end of 2010, the fundraising for Fund II will start, according to K Srinivas, managing partner, BTS.

It has received commitments from two limited partners (LPs) for its clean energy fund, while due diligence with three more LPs is going on. The clean energy fund, BTS India Clean Energy Fund, is expected to make its first close by September-October period by raising 40% of the target corpus. Some of the LPs in the first two funds of BTS include the Swiss Government, UK's CDC, Asian Development Bank, among others.

Srinivas said, “There are huge opportunities in the clean energy space, which can fill the 12% gap between demand and supply in today’s power generation. Though there are a lot of large coal and hydro-based projects coming up, it will take a minimum of four to five years to start production. On the other hand, renewable energy is the best option for today’s immediate requirement. However, the challenge for SME space in clean energy is lack of proper PE funding.” Initially the fund will focus on wind energy, biomass and small hydro power projects.

BTS currently manages two SME funds - $22 million Swiss Technology Venture Fund and $73 million BTS India Private Equity Fund I. The firm has made 19 investments from the Swiss Technology Fund, out of which it has exited 10 investments at an internal rate of return (IRR) of 20-22%. BTS, which is in exit mode from Swiss Tech Fund, holds about 10% stake in Arch Pharmalabs after diluting close to 1% to investors through a pre-IPO route. It is likely to exit from other investments such as Unimark Remedies and Octamec Engineering in a year.

Early this month, in a secondary sale transaction, Eredene Capital PLC acquired 8.22% stake in Ocean Sparkle Ltd. for a price of $11.1 million (Rs 52 crore) from BTS' Swiss Technology Venture Capital Fund. Last month, BTS sold 1.53 million shares representing 4.11% stake for total proceeds of $2.49 million (Rs 11.5 crore) in portfolio company, Parabolic Drugs Ltd through IPO. Post transaction, the funds holds 14.68% stake in Parabolic.

Clean energy sector in India has started seeing a lot of interest from PE funds. This year, a few deals such as TPG Growth’s $115-million investment along with other investors in renewable energy company Greenko Group and IFC’s $10-million investment in renewable energy firm Auro Mira Energy took place in the clean-tech space. Last year, Global Environment Fund had also invested $46.3 million in Greenko. IDFC Private Equity had acquired wind energy assets of BP Energy India Pvt Ltd at an enterprise valuation of $95 million (Rs 463 crore) last year.

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