PEI Asia Forum: India not as bad as it seems(2)

Many of India's GPs are holding investments instead of exiting and LPs have soured on committing new capital, but some firms are adapting their strategies to take advantage of the private equity environment, according to panelists at the Private Equity International Asia Forum.

India’s current predicament can provide a new opportunity set to investors, speakers said.

“Today is actually a spectacular time to invest,” Apollo Global Management’s Mintoo Bhandari said on the panel. “Issues, inefficiencies, idiosyncrasies can be turned to your advantage,” he continued, “If one knows the environment, [problems] are things you can exploit as an investor.”

Apollo has teamed with ICICI Venture to form a special situations fund called AION, which will invest in high-quality businesses that are struggling to refinance loans. The fund is targeting around $500 million and reached a first close on $350 million last June.

The panel, which included ICICI chief executive Vishakha Mulye, agreed that GPs in India can continue to target a 25 percent or more return on investments.

“If you look at India as a sub-25 percent market, there is really no point investing in India,” Bhandari added. “We won’t even think about anything that is not in the 25 percent or more range.”

Mulye said not all companies will deliver a consistent 25 percent rate of return, but some companies will provide stellar exits and push up the overall return on the fund. She said ICICI exited one company at a return multiple of 29x.

Although LPs are concerned about Indian GPs returning capital, some fund managers are divesting businesses. Mulye said over the past three years ICICI has had 30 exits and returned $650 million to its LPs.

Fellow speaker Archana Hingorani, chief executive of IL&FS, revealed her firm has had “eight to 10 exits” in the past two years via an even mix of IPOs, strategic sales, buybacks and secondary transactions.