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RBI lays out framework for banks to limit bad loansJan 31, 2014 - LiveMint.com

Framework outlines a corrective action plan that will offer incentives for early identification of stressed assets by banks. More

RBI lays out framework for banks to limit bad loans

Jan 31, 2014 - LiveMint.com

Framework outlines a corrective action plan that will offer incentives for early identification of stressed assets by banks

Mumbai: The Reserve Bank of India (RBI) on Thursday laid out a road map to deal with a surge in bad loans in the `82 trillion banking system.

The framework outlines a corrective action plan that will offer incentives for early identification of stressed assets by banks, timely revamp of accounts considered to be unviable, and prompt steps for recovery or sale of assets in the case of loans at the risk of turning bad.

RBI has been worried about the pile-up of bad loans in India’s banking system as slower economic growth, which slumped to 5% in the last fiscal year—the least in a decade—high borrowing costs and stalled projects make it difficult for corporate borrowers to repay debt.

About `2 trillion in loans is now classified as bad loans and at least `4 trillion is being restructured. Together, this constitutes about 10% of all bank loans. A report released on Thursday by India Ratings and Research Pvt. Ltd, an arm of global credit rating agency Fitch, said stressed assets, including bad loans and restructured loans, are likely to increase to 14% of total loans by March 2015.

In an October interview, RBI governor Raghuram Rajan said “the pain of (loan) restructuring has to be borne fairly (between the lender and the borrower)”. Rajan said banks needed to closely monitor these loans, and act—some assets could be recovered by rolling over debt, others by infusing new blood in the management, and still others by simply pumping in more money.

On 17 December, RBI issued a discussion paper titled Early Recognition of Financial Distress, Prompt Steps for Resolution and Fair Recovery for Lenders: Framework for Revitalising Distressed Assets in the Economy.

On Thursday, the central bank issued final rules similar to the measures outlined in the working paper after taking public feedback into account.

Lenders will need to carve out as special category of assets termed special mention accounts (SMAs) in which early signs of stress are visible.

Accounts within this category will be put under three sub-categories, based on the period for which their principal or interest payments are overdue. The duration of overdue payments can range from under 30 days to 90 days. Loan repayments that are more than 90 days overdue are classified as non-performing assets (NPAs) under existing regulations.

If a borrower’s interest or principal payments are overdue by more than 60 days, a joint lenders’ forum must be formed by the bankers for early resolution of stress, RBI said.

The new rules also offer incentives to lenders to quickly and collectively agree to a resolution plan by offering better regulatory treatment for stressed assets where such a plan is under implementation.

As a way to discourage long-drawn-out negotiations between bankers, RBI said accelerated provisioning will be applicable if no agreement can be reached.

Gross NPAs of 40 listed Indian banks rose to `2.29 trillion as of September, up 37% from last year. Rising bad and restructured loans hurt the profitability of banks because they have to set aside more money top cover such loans.

An important part of the new framework is the independent evaluation of large-value restructuring that has now been made mandatory.

Restructuring proposals in accounts where the aggregate exposure of banks is above `500 crore will now be subjected to assessment by an independent evaluation committee (IEC) of experts.

“The IEC will look into the viability aspects after ensuring that the terms of restructuring are fair to the lenders,” said RBI.

The committee will submit its recommendations to the corporate debt restructuring (CDR) cell within a period of 30 days.

The proposal gains importance in light of the spurt in cases of CDR during the past few years. About `4 trillion of loans is being recast by Indian banks both through the so-called CDR mechanism and on a bilateral basis between individual banks and borrowers.

The new rules also permit leveraged buyouts for specialised entities for acquisition of “stressed companies” and outlines steps to enable better functioning of asset reconstruction companies.

“Appropriate incentive structures may be built so as to provide greater role to PE (private equity) firms and other institutions in restructuring of troubled-company accounts. These institutions can be expected not only to bring additional funds for restructuring, but also bring in expertise for management of the business unit in question,” RBI said in a statement.

Further, banks will not be allowed to offer finance to such specialized entities put together for acquisition of troubled companies.

“It (the set of guidelines) brings some much-needed attention to a very important area,” said Shinjini Kumar, a director at PricewaterhouseCoopers. “A secondary market in stressed debt will ensure good credit quality and improve confidence in banks.”

Going by the new rules, borrowers who do not cooperate with lenders in bad-loan resolution will have to pay higher interest for any future borrowing. Banks will also be required to make higher provisions for further loans extended to borrowers who are considered to be “noncooperative”.

In the interest of better information sharing within the banking system, RBI said it will set up a central repository of information on large credits to collect, store and disseminate credit data to lenders.

For this, banks will have to furnish credit information on all their borrowers having aggregate fund-based and non-fund-based exposure of `5 crore and above.

Buyouts make up 20% of PE deals in 2013Jan 15, 2014 - LiveMint.com

Buyout deals, in which investors typically buy a majority or controlling stake in a company, touched a new high in 2013, accounting for 20% of all private equity (PE) investments. More

Buyouts make up 20% of PE deals in 2013

Jan 15, 2014 - LiveMint.com

Mumbai: Buyout deals, in which investors typically buy a majority or controlling stake in a company, touched a new high in 2013, accounting for 20% of all private equity (PE) investments.

There were 660 PE deals last year worth $10.5 billion, comprising buyout deals worth $2.1 billion, according to data provided by VCCEdge—a firm that tracks investment activity in the country. In 2012, buyout deals made up 8.1% of PE deals. In 2011, they were 10.7%, while in 2010, such transactions amounted to 3.7% of all PE deals.

Analysts say the steady increase in the number of buyout dealsindi cates that PE investors in India are becoming more actively involved with the functioning of their portfolio companies.

Vish Narain, country head, TPG Growth India, said the increase in the number of buyout deals is a function of the evolution of the PE industry in the country, and can be attributed to reasons such as family succession, exits for incumbent investors and better control on investor exits.

“Growth has slowed down in India and promoters are increasingly feeling that it’s not easy to grow a business here. Funds are also realizing that it’s not easy to create capital by being passive investors,” Narain said.

Increasingly, the stigma of selling a business is fading fast as entrepreneurs are seeing instances of companies like Tirumala Milk Products (P) Ltd, and Ranbaxy Laboratories Ltd being sold by their promoters. The promoters are starting to view majority stake sale more rationally, and that should also lead to more buyouts in the future, said Narain.

With valuations still running high for companies in fast growth sectors like consumer goods and healthcare, investors say alpha returns — that generate internal rate of returns, or IRRs, of over 20%—can only be created by being actively involved in the business.

“Investors who have operational expertise will prefer to do buyout deals. There is a strong interest among investors for companies whose capital structures have gone bad. PE firms that have experts for such situations will certainly invest,” said Sanjeev Krishnan, executive director of PricewaterhouseCoopers (PwC).

In one of the largest buyout deals this year, PE firm KKR and CO. L.P. (KKR) acquired Mumbai-based Alliance Tire Group (ATG) from Warburg Pincus Llc. for an undisclosed sum. The deal is pegged to be around $500 million. In another buyout deal, PE firm Apax Partners acquired GlobalLogic Inc. for $420 million.

Sanjay Nayar, the CEO of KKR India said the next two years are going to be very active for private capital deployment and once the economic upturn kicks in, there is no doubt that private capital both debt and equity will be a very important source for meeting the capital needs of this growth.

“In parallel, conglomerates will have to think hard about capital efficiency resulting in a number of opportunities spanning carve outs, significant minority stakes and complete buyouts,” Nayar said.

the brand name ‘Moshe’s’, for an undisclosed sum. In 2012, it acquired Bangalore-based Vasudev Adigas Fast Food Ltd, a chain of South India food outlets.

Last year, Renuka Ramnath’s Multiples Alternate Asset Management Pvt. Ltd acquired a controlling stake in Mysore-based hospital chain Vikram Hospital for about `180-190 crore. “We will see more buyout deals in future as growth continues to be slow in the country,” said Narain, adding that TPG Growth was open to doing buyout deals.

PwC’s Krishnan said there are many buyout opportunities in the infrastructure, capital goods and healthcare space. “We are seeing situations in consumer sector where businesses are being clubbed together to be packaged off to strategic buyers,” he said.

Investors say lack of leverage can be a hindrance for large buyout transactions in India.

For example, KKR’s first deal in 2006 in Flextronics Software Systems, later renamed Aricent Technologies Inc., for $900 million is still the largest leveraged buyout in India. Globally, buyout firms leverage debt to buy companies.

In India, the Reserve Bank of India (RBI) bars them from raising debt to buy companies.

“We will see more mid-sized buyouts. In the absence of leverage, large buyout deals can become unviable from the returns point of view,” said Narain.

Loan recast demand sees record jumpJan 9, 2014 - The Times of India

New Delhi: Corporate debt restructuring proposals went past the Rs 4 lakh crore mark at the end of December 2013, compared to Rs 3.62 lakh crore at the end of September. More

Loan recast demand sees record jump

Jan 9, 2014 - The Times of India

NEW DELHI: Corporate debt restructuring proposals went past the Rs 4 lakh crore mark at the end of December 2013, compared to Rs 3.62 lakh crore at the end of September, resulting in a record quarterly addition of around Rs 45,000 crore.

According to the latest data accessed by TOI, during the first nine months of the current financial year, companies have approached the forum comprising banks to restructure loans that add up to almost Rs 1.1 lakh crore. In all, there have been 604 references to the CDR since it was set up over a decade ago, with 24 cases coming before it during the December quarter. Of the two dozen fresh cases during the quarter, seven were rejected before admission, while 11 were approved although the sum involved was around Rs 16,000 crore, a senior banker said. There are another six which are "under process" with aggregate amount of loans adding up to around Rs 20,000 crore.

The jump in restructuring proposals coincides with a rise in non-performing assets of banks. Listed banks had gross NPAs to the tune of Rs 2.3 lakh crore at the end of September, which was nearly 25% higher than the level seen in March 2013.

The record restructuring proposals point to the building stress in the banking system with several companies finding it tough to repay loans that they had taken over the past few years. While the economic slowdown has taken a toll, there are several companies that are highly leveraged as projects have either failed to take off or their cash flow arithmetic has gone haywire. There are several players who went about increasing their sales without bothering about a break even, and are now in trouble, market analysts said.

Companies that have loans from multiple sources usually approach the CDR cell for a common solution to speed up the restructuring process, a tool that was used across several countries in the aftermath of the 1997 Asian crisis. While the other countries have managed to get a grip over the problem, in India loan restructuring is on the rise again after a brief gap during the period of boom. Under the set-up, 75% of the lenders by value have to agree to a proposal, which then becomes binding on the others.

The spike in loan restructuring has prompted the Reserve Bank of India to review the model with central bank deputy governor K C Chakrabarty being highly critical of the way loans have been recast.

"What we are saying is that CDR should not be done only to keep assets strengthened. CDR should be done if the assets can have a full life and banks can recover the dues. We have nothing against CDR. Secondly, why smaller stakeholders are not getting the benefits is the question...We are not saying that restructuring should not be there," he told ET Now in an interview.

Buyout PE deals steal the show in 2013, touch $2 bnJan 09, 2014 - Business Standard

Chennai: Buyout deals, in which PE firms take a controlling stake in the companies they invest in, crossed $2 billion (Rs 12,400 crore) in value terms in 2013. More

Buyout PE deals steal the show in 2013, touch $2 bn

Jan 09, 2014 - Business Standard

Buyout deals, in which PE firms take a controlling stake in the companies they invest in, crossed $2 billion (Rs 12,400 crore) in value terms in 2013. While overall investments in value terms came down sharply by 18.8 per cent last year, the buyout category of investments was the only one to show an uptick in both value and volume terms (18 deals) over the year before. In 2012, buyouts had totalled $1.9 billion across 17 transactions.

According to Venture Intelligence data, buyouts accounted for less than five per cent in volume terms during 2013. However, it accounted for as much as 27 per cent of the value pie.

According to Arun Natarajan, CEO of Venture Intelligence, the major reasons why buyouts are at an all-time high are the rupee-dollar fluctuation, which worked in favour of investors, and attractive valuations. Investors including limited partners believe in taking control in an investee firm, as it can address issues such as corporate governance and offer smooth exits. Avinash Gupta, senior director and leader (financial advisory) at Deloitte in India, pointed out that sometimes just one deal can swing the numbers. Buyouts are gaining momentum for a different set of reasons — earlier investments are getting matured, rupee valuations, challenges in running the business and lack of avenues for exits, he says.

“Buyouts are going to be more, unless other options are available, especially IPO, which is a favourable option,” Gupta noted. He added there would be a lot of interest in sectors where the cost is in rupee but revenue in dollars. For example, sectors such as information technology (IT) and pharmaceuticals

On the other hand, PEs are also asking promoters to dilute their majority stake together with the PEs, in which case the premium will be high. It doesn’t mean the promoters will exit the company, Gupta said. “They will continue to run the business and they have the option of increasing their stake later.”

Promoters also feel that doing business is becoming difficult due to hassles such as corruption, labour issues and manpower shortage, lower margins, etc. Some companies find that the next-gen is not keen to enter family business.

Promoters of mid-size companies — especially in sectors such as IT services, manufacturing and health care — are seen willing to part with majority stake. Notably, most of the buyouts transactions are between two investors — one PE selling to another. Explaining the focus on mid-size companies, Gupta said most of the Indian funds are in the size of $400-500 million, which they need to invest this money across 10-15 deals. So ideally, the funds would invest $20-30 million per deal, which are generally categorised as mid-size with a turnover of around Rs 600-700 crore. This trend also shows the sector is maturing in India. In developed countries, buyouts contribute a significant portion, while in India, it was minority or negligible, Natarajan of Venture Intelligence said. The sectors that reported most number of the buyouts are IT & IT-enabled services (five deals), manufacturing (five deals), engineering and construction (four deals) and agri-business (one deal), education (one deal), food and beverages (one deal) and health care & life science (one deal).

Indian banks assets under stress rise, may get worse: Reserve Bank of IndiaDec 30, 2013 - The Indian Express

Mumbai: With stressed assets (non-performing assets - NPAs) continuing to rise and expected to get worse, the Reserve Bank of India (RBI) has cautioned that risks to the banking. More

Indian banks assets under stress rise, may get worse: Reserve Bank of India

Dec 30, 2013 - The Indian Express

Mumbai : With stressed assets (non-performing assets - NPAs) continuing to rise and expected to get worse, the Reserve Bank of India (RBI) has cautioned that risks to the banking system have increased over the last six months, but added that there are no systemic risks at the moment.

"The banking stability indicator shows that risks to the banking sector have increased since June 2013," the Reserve Bank of India said in its half-yearly Financial Stability Report released today.

Raghuram Rajan: Inflation limiting RBI's ability to boost economic growth

The indicator combines the impact on all major risk dimensions, said the RBI, which has carried out multiple tests before coming to this conclusion.

"The strain on asset quality continues to be a major concern," the report said.

With the present conditions continuing, the gross NPAs in the system will rise to 4.6 per cent by September 2014 from 4.2 per cent in September 2013 or about Rs 2.29 trillion from Rs 1.67 trillion a year earlier, it said.

The amount of recast loans touched an all-time high of 4 trillion or 10.2 per cent of the overall advances as of September 2013, the report added.

However, the RBI expects some positives in the second half of the next fiscal and is estimating gross NPAs to improve to 4.4 per cent by March 2015.

In case the economic conditions deteriorate, the same number will be 7 per cent by March 2015, the RBI warned.

The state-run banks will be the worst-affected, the report said, pegging the GNPAs for public sector banks at 4.9 per cent by March 2015. It projected the GNPAs for private banks at 2.7 per cent in the same period.

If the restructured assets are added, the total stressed advances ratio will rise to 10.2 per cent as of September 2013 from the 9.2 per cent in March 2013, the RBI said.

The report reiterates that RBI will discontinue the system of relaxed restructuring of advances from 2015 onwards and warned that state-run banks will be affected the most as the provisions will shoot up.

"The regulatory concerns regarding restructuring arises from the possibility of the relaxations not being used judiciously by banks commensurate with the viability of projects. These relaxations for asset classification/provisioning will be phased out by April 2015," it said.

The report said though agriculture accounted for the highest GNPAs at 5.5 per cent as of the quarter to September 2013, it is the industrial sector with a GNPA of 4.9 per cent and 10.9 per cent of restructured loans which is the main culprit.

Among the sectors, it said infrastructure, iron and steel, aviation, textiles and mining, which have not been doing well, will continue to perform badly. "Some factors affecting the asset quality adversely are current economic slowdown – global and domestic – persistent policy logjams, delayed clearances of various projects, aggressive expansion by corporates during the boom phase with resultant excess capacities and deficiencies in credit appraisal," it said.

The central bank also said that present levels of provisioning for loan losses by banks may not be sufficient to meet the expected losses if the conditions were to deteriorate.

RBI moots leveraged buyouts for acquisition of 'stressed companies'Dec 17, 2013 - VC Circle

The banking regulator has also asked sector-specific private equity firms to play an active role in the stressed assets market. More

RBI moots leveraged buyouts for acquisition of 'stressed companies'

Dec 17, 2013 - VC Circle

The banking regulator has also asked sector-specific private equity firms to play an active role in the stressed assets market.

The Reserve Bank of India has proposed major changes aimed at restructuring of stressed assets in the system which may lead to norms that allow leveraged buyouts of such non-performing assets besides giving greater play and investment opportunity to private equity firms in such firms.

In a discussion paper rolled out on Tuesday, the financial regulator said it would allow banks to extend finance to ‘specialised’ entities put together for acquisition of troubled companies. The lenders should, however, ensure that these entities are adequately capitalised.

At present, banks are not allowed to finance acquisition of promoters’ stake in Indian companies. The underlying reason being promoters should acquire equity stake from their own sources and not through borrowings.

This has also stopped global buyout firms from participating in one big chunk of the market, a segment they are associated with in the developed economies. As a result, even big buyout majors such as KKR, Carlyle and Blackstone tend to largely focus on growth capital investments in India.

This could change if the proposed rules are implemented. RBI has called for observations and views on its proposals by January 1, 2014.

Among some key highlights, it has said PE firms and large NBFCs with proven expertise in resolution/recovery may be allowed to participate in auctions through explicit regulatory affirmation. Such entities will have to be provided authority under SARFAESI Act on selective basis to deal with specific assets.

RBI said appropriate incentive structures may be built so as to provide a greater role to PE firms and other institutions in restructuring of troubled company accounts. These institutions can be expected not only to bring additional funds for restructuring but also bring in expertise for management of the business unit in question.

It said alternatively or additionally, a specialised institution may be created with equity/quasi-equity participation of entities such as PE firms or international institutions with the Indian government holding a part of the stake. This institution may participate in restructuring of borrowal accounts along with banks and other lenders. It has put the ball in the government’s court for this proposal.

The trigger for the new norms is the rise in number of stressed firms given the slowdown of the Indian economy. As a result, the Indian banking system has seen an increase in NPAs and restructured accounts in the recent years.

The RBI discussion paper seeks to outline a corrective action plan that will incentivise early identification of problems, timely restructuring of non-performing accounts which are considered to be viable, and taking prompt steps by banks for recovery or sale of unviable accounts.

Here are some key points:
Sale of assets between asset reconstruction companies (ARCs) is not permitted under the SARFAESI Act provisions. In order to encourage liquidity and price discovery of stressed assets, sale of assets between ARCs may be permitted. RBI will take up the issue with the government.
The ability of ARCs to raise limited debt funds to rehabilitate units will be considered. This will be accompanied by increasing their minimum level of capitalisation in view of recent liberalisation of FDI ceilings and enhancement of working funds. The ARCs will be encouraged to reach certain minimum level of AUM targets.
Large designated NBFCs could be allowed to assign stressed assets to ARCs. If any of these designated NBFCs are not notified under the SARFAESI Act, the issue of their notification will be taken up with the government.
However, a bank /NBFC cannot sell assets to its own promoted ARC or an ARC where it owns at least 10 per cent equity.
Early formation of a lenders’ committee with timelines to agree to a plan for resolution.
Incentives for lenders to agree collectively and quickly to a plan; better regulatory treatment of stressed assets if a resolution plan is underway; accelerated provisioning if no agreement can be reached.
Improvement in current restructuring process: independent evaluation of large value restructurings mandated, with a focus on viable plans and a fair sharing of losses (and future possible upside) between promoters and creditors.
More expensive future borrowing for borrowers who do not co-operate with lenders in resolution.

More liberal regulatory treatment of asset sales where a lender can spread loss on sale over two years provided loss is fully disclosed and takeout financing/refinancing could be possible over a longer period and will not be construed as restructuring.

Gross non-performing assets of nationalised banks soarJan 01, 2014 - The Times of India

Gross non-performing assets (NPAs) have increased sharply in public sector banks (PSBs) in the first quarter of the current financial year as a rapidly slowing economy is resulting in a quantum leap in bad loans. More

Gross non-performing assets of nationalised banks soar

Jan 01, 2014 - The Times of India

Gross non-performing assets (NPAs) have increased sharply in public sector banks (PSBs) in the first quarter of the current financial year as a rapidly slowing economy is resulting in a quantum leap in bad loans. Gross NPAs as a percentage of advances stood at a two-and-half year high in several leading PSBs in the April-June quarter.

State Bank of India (SBI), the country's largest lender, topped the list of banks with the highest gross NPAs (in percentage terms) during the quarter among BSE-Bankex constituents. The gross NPA to advances for SBI, which has seen a steady increase in bad loans, surged to 5.56% in April-June, the highest since the quarter ending March 2011. Gross NPAs have increased 81 basis points (0.81%) for SBI during the quarter, data with the Centre for Monitoring Indian Economy (CMIE) showed. "The rise of bad loans is across the board. The growth has lowered, manufacturing sector is not doing that well and interest rates are going up instead of moving down. In such an environment, NPAs will only move up," Vaibhav Agrawal, vice president, Angel Broking said.

Gross NPA to advances surged to the highest in 10 quarters for Bank of Baroda, Canara Bank and Punjab National Bank. Incidentally, global ratings agency Moody's downgraded the bank finance strength ratings of Bank of Baroda, Canara Bank and Union Bank of India on August 16. Moody's says PSBs would find it difficult to respond to slower economic growth, deteriorating asset quality and declining profit margins.

Bank of Baroda whose gross NPA stood at 2.99% at the end of the first quarter of FY 14 said in an analyst call that the bank has "significantly strengthened its credit monitoring process for early detection of stress accounts ." In terms of sequential movement (from fourth quarter of FY 13 to first quarter of FY 14) of gross NPAs for Bank of Baroda, the share of agriculture was highest at 5.29% during the period ended June 30 as against 4.9% during the fourth quarter of FY 13. Large and medium enterprises stood second with a gross NPA ratio of 5.06% on June 30 as against 3.29% during March end.

Interestingly, private sector banks have not seen much deterioration in asset quality and have managed to maintain their NPAs at low levels. HDFC Bank, Axis Bank and IndusInd Bank are maintaining their gross NPAs to advances at 1% levels for the past several quarters. ICICI Bank's gross NPAs had increased to a high of 4.47% in the quarter ending March 2011. But the bank has steadily brought it down to 3.23% in April-June, CMIE data showed. "That is because these institutions have better credit standards when compared to their nationalized counterparts," Agrawal said.

Even south-based banks have not been spared from the NPA blues. In the case of Indian Bank, gross NPA levels showed a rise and stood at Rs 3,723 crore as on the first quarter of FY 14 while it stood at Rs 1,554 crore as on June of last year. Net NPAs also rose during the same period to Rs 2,486 crore as compared to Rs 963 crore during the same period in 2012. During the period, the bank restructured accounts in the discom sector to the tune of Rs 35.01 crore.

"We have contained our net NPA ratio at 2.3%. We have recovery strategy and action plan for the year wherein we are meeting up with the top 50 NPA borrowers every weekend to see which accounts can be upgraded and initiating recovery proceedings for others," T M Bhasin, chairman and managing director, Indian Bank said.

Similarly, Indian Overseas Bank also saw its bad debts rise during the first quarter of FY 14. Gross NPA rose to Rs 7,431.69 in the June 2013 quarter as against Rs 4,409.70 in the corresponding quarter last year.

India Private Equity Report 2013May 07, 2013 - Bain & Company, Inc.

Most deals continue to be for minority stakes; however, majority stakes are predicted to become more popular. And Early-stage deals have become more popular; buyouts and secondaries will increase in the future. More

India Private Equity Report 2013

May 07, 2013 - Bain & Company, Inc.

have continued to run the businesses after handing over controlling stakes. However, this trend is beginning to change. Larger firms are leading the way, with families such as the Singhs of Ranbaxy agreeing to relinquish control and live off money in the bank, and GPs believe this trend will trickle down to smaller businesses, eventually.

Secondaries are also slated to increase. In the early days of India's private equity scene, secondary buyouts occurred when funds were unable to meet the requisite deal size without buying out the older fund's stake.

This is no longer the case; instead private equity players are taking the initiative. Indeed, Goldman Sachs has raised a $5 billion fund (Vintage Fund VI), focusing exclusively on the secondary market. In our survey, some GPs confirmed that they have been approached by other funds to buy out their portfolio firms, while others stated that they have looked at the portfolios of other funds and explored a secondary purchase. And in their opinion, secondary growth is likely to be boosted by the lack of IPOs and primary exits.

Finally, the number of deals channeling private investment in public equity (PIPE) fell, from 71 deals in 2011 to 67 deals in 2012. Nonetheless some 23% of total funds invested were through PIPE deals, one of the highest percentages in the recent history of Indian PE. Our conversations with practitioners suggest that PIPEs in India are here to stay, as several attractive assets are unable to find the liquidity they need through public channels.

2013 and beyond

Expectations for deal activity in 2013 remain cautious but still positive. Of those we interviewed, 45% expect to see moderate growth throughout the industry in the next year (see Figure 3.11). The steps taken towards improving India's legislative framework have had a positive effect on predictions, and GPs believe more deals will be closed in 2013

Predictions for the medium term are similar to those made for 2012, according to our survey, with 60% of respondents believing the industry will witness moderate growth. However, fewer respondents expect high-growth figures (10% to 25%).

When asked about their own intentions for investing in 2013, only 51% of those we spoke to plan to invest between $50 million and $200 million, whereas for the medium term (of three to five years), this percentage leaps to 95%. Nearly half of the respondents (45%) are looking to invest less than $50 million in 2013—up from 35% in 2012.

We predict that growth will continue in healthcare and consumer products. Healthcare, as we noted earlier, is a recession-proof field, with growth predicted at more than 15% as infrastructure and insurance penetration rates improve. Consumer products have shown some resilience in troubled economic times, and there's a distinct increase in investments in food and beverages over the last two to four years. We believe also that education will continue its upward trajectory and attract increasing levels of investment. However, telecom and real estate are likely to remain low on investors' list of priorities (see Figure 3.12).

One certainty is that the Indian market will continue to be heavily intermediated, and fund networks and banks are likely to play a significant role in deal sourcing (see Figure 3.13). Having said this, most PE practitioners we spoke to agreed that they will work harder to source deals. This entails establishing a close and cordial relationship with entrepreneurs and engaging with them as early as possible—sometimes even before the promoter starts thinking about raising VC or PE capital.

Our survey reveals that entrepreneurs are increasingly looking at valuation, followed by brand and sector experience, when choosing a partner for PE funding (see Figure 3.14). As Indian entrepreneurs grow savvier, there is increasing pressure on PE funds to develop sector expertise. Nonetheless, LPs recognise that the Indian market is still not deep enough for specialisation in all sectors.

PE buyouts still nascent in India but global majors see improved pipelineJan 10, 2014 - VC Circle

Around a fifth of all distressed assets in India can be considered as buyout opportunity, according to panellists at the VCCircle India Limited Partners Summit 2013. More

PE buyouts still nascent in India but global majors see improved pipeline

Jan 10, 2014 - VC Circle

Around a fifth of all distressed assets in India can be considered as buyout opportunity, according to panellists at the VCCircle India Limited Partners Summit 2013.

India is much behind other markets in the Asia-Pacific region in terms of private equity-led buyouts but the pipeline of such transactions looks better, according to the buyout specialists who spoke at the VCCircle India Limited Partners Summit 2013 in Mumbai on Thursday.

Moderating a session on Indian landscape for big ticket buyouts, Shashank Singh, managing director at Apax Partners India, pointed out that the majority of the private equity transactions in India comprise growth capital investments and while early-stage deals have picked up, buyouts remain an insignificant part of the deal volume.

In terms of deal value, buyouts form a relatively higher proportion of PE investments in India but are still lower compared to regional peers such as China, where they constitute 16 per cent of overall value, and Japan, where buyout value stands at 66 per cent, he said.

According to the panellists, there are few regulatory limitations in India for leveraged buyouts which are associated with PE firms in mature markets. But then, there are other hurdles, due to the reluctance of promoterled companies to move on.

However, the prospects are now improving as in some of the family-owned enterprises, the next generation is not keen to pursue the business or the head of the family acknowledges that the firm would be better run by others.

Devinjit Singh, managing director of Carlyle, said that the percentage of buyouts would have been higher but for the business environment in India.

“Selling the family business at the time of succession is considered a taboo in India, whereas it is celebrated in other places,” he observed.

Singh also added that over the past five years, buyouts constituted only around 20 per cent of all the deals his team looked at and 80 per cent of the deals were for transactions with minority positions. “However, if I talk about our deal pipeline for the next 12 months, control transactions are expected to constitute almost half of all the deals,” he noted.

Carlyle does both growth capital and buyout deals in India.

According to Mathew Cyriac, senior managing director of Blackstone, the buyout trend looks positive. “In our 20 transactions in the last six years in India, we had four buyouts and we are opportunistic about it,” he said.

Referring to opportunities for buyouts of distressed assets, the panellists noted that 20 per cent of the total distressed asset spectrum can be looked at for further deal opportunities.

Asian Entrepreneurs Are Bullish On The Future

But Indians believe they succeed despite the state. The Chinese say they succeed because of it.

August 3. 2010 - online.wsj.com