The spill-over effect of Vodafone’s battle with Indian tax authorities may prove costly for several other deal makers. The Central Board of Direct Taxes (CBDT) has reopened about 400 cases of big and mid-sized transactions that took place during the past six to seven years. According to sources close to the development, the cases include foreign corporates and PE firms selling stakes of companies based in India, and not paying any capital gains tax. One of the first such cases that the tax department is currently probing is Montreal-based Alcan Inc’s selling of the controlling stake in Indian Aluminium Company (Indal) to Hindalco Industries seven years ago, sources in the finance ministry told SundayET. Significantly, there were around 300 PE deals clocked in India in 2006 alone. The tax department had earlier slapped a notice on Vodafone Essar, demanding $2 billion as capital gains tax over its $1-billion acquisition of a majority stake in Hutchison Essar, India’s fourth largest mobile telephone company. The case is now locked in the Bombay High Court. […]

Leading the pack is ICICI Ventures (I Ven), which acquired US-based Radiant Research for about $65 million in June this year. The fund is now looking at similar investments in South America, Eastern Europe and the Asia Pacific. It has roped in the top five Indian pharmaceutical companies as partners, including Wockhardt and Dr Reddy’s. Along with these companies, I Ven will purchase CROs worldwide and integrate them as one single entity called Swiss Biosciences. Similarly, Kotak Private Equity is doing the rounds of investment bankers to build something similar. An investment banker, who did not wish to be named, said, “Kotak PE wants to build a chain of clinical research organisation by acquiring companies in the US, Europe and India.” Sources say UTI Venture Funds is also contemplating the same. […]

Quite contrary to investment guru Warren Buffet’s term ‘deal flippers’ for private equity companies, ET Intelligence Group concludes that private equity money is good money. In 1999, Warburg Pincus picked up a stake in an emerging company called Bharti Tele-Ventures. By ’01, it had invested close to $300 million in a company yet to make a profit. Sceptics sniggered and there was a time when the company’s stock price plunged lower than the issue price, However, Warburg remained confident and finally, the bet paid off. When Warburg sold its stake, it walked away with a profit of $1.3 billion. It was a landmark deal, in that private equity (PE) became a force to reckon with. From $1.1 billion invested in 60 deals in ’04, to $7.9 billion in 302 deals in ’06, PE has grown by a whopping 600%. In the first half of ’07, 200 deals worth $6.82 billion had been announced. It’s likely that the total investment will touch $10 billion by the year-end. Blackstone, Carlyle, Farallon, Chrys Capital, Morgan Stanley and Temasek are some companies that have committed millions to the India Growth story. Some have entered as venture capitalists, which generally focus on early stage investments, while others are pure PE buyouts. PE has come a long way from providing fuel (funds) to the fiery growth of India Inc. It helps investee companies with a whole host of activities — from forging strategic alliances to assisting in corporate governance, from providing management advice to budgeting. To understand the PE impact on India Inc, ET Intelligence Group decided to scrutinise the performance of companies receiving PE funding. We did this by tracking deals concluded before January ’07, since it’s too early to comment on companies that received money in ’07. We analysed data for approximately 100 listed companies, spread across sectors like gems and jewellery, tea, shipping, aviation, edible oil and garments, to name a few. We compared the performance of companies receiving PE funds with those of their peers in the corresponding ET sectoral indices that did not get any such funds. […]

The government is likely to allow private equity (PE) funds and venture capitalists (VCs) to be part of the consortia that bid for infrastructure projects. At present, these entities can only participate indirectly in these projects by committing funds to one of the bidders. “Given that financing of the infrastructure sector is essential to sustain the growth story, the move to enable PE/VC funds to invest in these projects is in the right direction,” said a finance ministry source. Sebi-registered VC funds and PE firms are barred from bidding for infrastructure projects, as they do not meet conventional qualifications like gross revenue, net worth or net cash accruals. The move is in line with the recommendations of the infrastructure finance committee headed by Deepak Parekh. The Centre is understood to have agreed in principle to the proposal and is examining the impact. The move would encourage these investors to participate at the inception stage, the source added. […]

India has scored over China in terms of total private equity (PE) investments received from the United States over the last eight years, but China is well ahead of India in terms of PE investments this calendar. According to a study by Thomson Financial, “India appears to be emerging as a new favourite among global PE investors. Over the last eight years, it has received $2.51 billion in PE investments compared to $2.4 billion in China. Nevertheless, India still lags in terms of growth as PE investments have grown at a CAGR of 26.7 per cent over the last seven years.” Thomson Financial is an arm of the Thomson Corporation, one of the world’s leading information companies, focused on providing integrated information solutions to business and professional customers. PE investments from the US to China is growing at a compounded annual growth rate of 36.5 per cent (over the last eight years), but private equity investments have grown by 108 per cent (through October 2007) compared to a year ago, the Thomson study said. US PE firms are among the largest investors and play a pivotal role in the growth of such investments in the two Asian countries. Since 2000, these US firms have constituted 96.8 per cent of all PE investments in China and 73.4 per cent in India. […]