June 2007
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Govt to keep Eagle eye on PE firms

The growing global discomfort over private equity (PE) groups is finding some resonance in India, too. Policymakers are planning to monitor their activities and investments to firm up views on whether norms applied on PEs need a review.

Several top PE groups such as Blackstone, Carlyle Group, Warburg Pincus, CVC, Actis and Temasek have invested in scores of firms in India, driven by expectations of good returns in an economy growing at over 8% annually.

Estimates place their deals in 2006 at close to $8 billion. The figure is expected to vault over $10 billion in FY07-08. A government official said while there is no case for regulating this set of investors now, the issue of funds generated by them for buyouts will have to be looked at.

Globally, private equity groups have come under fire for excess leveraging. They borrow cheaply and then take control of large firms, sparking criticism that the companies they acquire are being saddled with debt while those managing these funds are making huge gains.

In India, worries haven’t mounted as such leveraged buyouts are forbidden. Yet, given increasing investments by PE firms here, policymakers feel a close watch on their activities is warranted. “We are working on how to track them more closely, especially the kind of companies they are investing in, the duration of such investments, and their entry and exit patterns. After that, we will decide whether regulatory changes are called for,” an official said.

Private equity investments in India have been propelled by a deal featuring Warburg Pincus, which made over $1 billion after selling a good part of its holdings in Bharti.

Source : Economic Times

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