Fund managers in India can breathe a sigh of relief, despite the fact that the days ahead for private equity investments are expected to be tough. Limited partners (LPs) believe that India continues to be the most favored destination in emerging markets as far as private equity investments in the Asia Pacific region are concerned.
LPs include high net-worth individuals or entities such as insurance firms, pension funds and endowments that provide money to PE funds for investing in companies.
A study by Coller Capital shows that India, due to its high growth potential, offers the best PE investment opportunity in Asia-Pacific (ASPAC). India should benefit from the proposed increased LP allocation to the ASPAC region, the report says.
As per the study, more than 32% of LPs who responded have already made investments in India, while about 28% LPs plan to invest in India in the next three years. The same figures for China are 35% and 25% respectively. Japan has received investment from about 30% of LPs, while 20% plan to invest in the country in the near future.
According to KPMG, the financial environment for PE players in India is becoming attractive, as valuation multiples (P/E multiples) are close to their historical low of 9.6 in 1998. It was 11.48 on January 22, 2009, down from 30 during January 2008.
The difficulty to source capital from alternative sources such as the public market, debt and FCCBs, have boosted the demand for PE investment, the report says.
Anubha Shrivastava, MD, Asia, CDC Group Plc, a fund of funds business owned by the British government, told FE, ?We will be very selective on further investments as the global recession has affected our portfolio companies. However, India will be a favoured destination compared to other Asian countries.?
PE could provide capital to replace debt obligations, which will fall from 2009 to 2013, as some Indian business groups have overstretched themselves owing to large overseas acquisitions, a KPMG survey said.
Companies that have issued FCCBs, such as M&M ($300m), Tata Motors ($400m), Aurobindo Pharma ($260m), Suzlon ($300m) and Wockhardt ($110m), are overstretched and may need re-financing, it said.
According to Philip Bilden, MD, HarbourVest Partners (Asia) Ltd, India has advantages of being an active growth capital market, along with declining entry valuations and a large base of funds.
At the same time, a competitive deal environment and pressure on portfolio valuation could have a negative impact on investments in India, he pointed out. According to him, LPs have changed their status ?influx? during the golden age (?00-?07) to ?re-balancing? 2008 onwards.