High property prices and spiralling interest rates are holding back many developers and hospitality funds from writing big cheques for hotel projects in India. Instead, private equity (PE) funds are focusing on other developing markets like Vietnam, Malaysia and Thailand. PE players who were recently planning to invest in the Delhi-based Asian Hotels (before the split), had changed their minds. Some developers are having a rethink on their hotel projects, preferring to develop commercial office space, where upfront cash investment is less and returns are quicker. PE players were willing to bring in close to $1 billion, but few deals have been cut in the hospitality sector. “PE funds expect a 30-35% return in 3-5 years and that’s not possible when the real estate valuations are high,” said Hotel Leelaventures vice-chairman & MD Vivek Nair. Agrees Akshay Kulkarni, Knight Frank’s head of hospitality: “Large transactions in the domestic hotel market are getting fewer as the returns in India are low as compared to other developing markets.” Globally, hotel deals are getting delinked from properties. They strip off properties into separate companies or real estate investment trusts while PE investors invest only in the company that manages the hotel business. Until this happens in India, hotel deals will continue to be expensive, said an official from a Mumbai-based PE fund. […]

Private equity firms are shying away from investing in Indian auto parts makers, hitherto one of their favourites, citing muted medium-term growth potential, but experts said the long-term outlook remained positive. Private equity (PE) investment was likely to return once the sector tides over its current problems – falling domestic demand amid sluggish auto sales and high interest rates and stunted export growth, thanks to a hardening rupee, they said. “Manufacturing used to be the second most favourite sector for PE investors for almost two years and now it's nowhere in the top five,” Arun Natarajan, chief executive at Venture Intelligence, which tracks private equity deals, said. A third of all manufacturing deals used to be in the auto components sector, he added. PE firms invested about $215 million rupees in nine auto parts makers in 2006 but have managed to put in just about a third of that in three firms so far in 2007, according to VC Circle, that tracks India's deal economy. Warburg Pincus, New Vernon Private Equity, Standard Chartered Private Equity, DE Shaw, International Finance Corp., Actis Advisers Pvt Ltd., IL&FS Investment Managers are some of the private equity investors in the sector. “The rise in interest rates had a dampening effect on auto demand, which has led to some auto component companies deferring fund raising,” Nainesh Jaisingh, head of Standard Chartered Private Equity in India, said. […]

The volatility in the stock market on account of the US subprime mortgage losses could be a blessing in disguise for private equity (PE) deals that are in the pipeline. For, the turmoil should bring valuations of Indian companies to reasonable levels that would result in the conclusion of many more PE deals. “PE investors, who have been bullish on India, would remain cautious, scrutinising the deals a little more, till they see some stability in the market,” said Dhanraj Bhagat, Partner, Grant Thornton, a leading international accountancy firm. […]

Sebi to make quarterly disclosure a must. The Securities and Exchange Board of India (Sebi) will soon make it mandatory for international and domestic private equity (PE) and venture capital (VC) funds to submit quarterly investment reports to the regulator. Currently, foreign and domestic venture capital funds registered with Sebi have been voluntarily submitting quarterly investment reports to the regulator. Market sources said foreign and domestic venture capital funds, generally, are secretive about their investments, making it difficult for the regulator to keep a tab on their investments in India. At present, there are about 80 foreign venture capital investors and 90 domestic venture capital funds registered with the Sebi. The reason cited for the new rules is that as a regulatory body there was a need for the maintaining reliable data on PE/VC investments. Globally, private equities are neither regulated nor are their investments kept track of by the regulators. In India, private equities can come through three routes: foreign institutional investors of whom Sebi maintains a record, foreign direct investment, the data for which can be obtained from the Reserve bank of India, and foreign venture capital investors (FVCI), which now Sebi has started collecting. FVCI investments is not reported mandatorily to the Sebi, though they disclose the data when asked by the Sebi. […]

Private equity funds with a special focus on micro finance institutions have lined up billions of dollars for the sector in India. For instance, Aavishkaar Goodwell, a micro finance private equity company, is building a $25 million portfolio across India, $2 million of which has already been invested into Share Microfin, a micro finance company with over a million clients. Funds such as Bellwether and Lok Capital have also lined similar plans. Private equity funds raise capital from financial institutions and banks and lend it to micro finance companies, mostly for equity. For example Deutsche Bank, Netherlands Development Finance Company (FMO) and International Finance Corporation (IFC) of the World Bank group have provided funds for Aavishkaar Goodwell. IFC and FMO have also invested in the $12 million Lok Capital fund. Some other private equity funds have lined up much bigger sums. “For India we are not talking millions but billions,” says Vikram Akula, founder of the new age micro finance company SKS. […]