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February 28, 2008

Emerging markets PE Funds raise $59-B in 2007

204 Private Equity funds investing in the emerging markets of Asia, Central & Eastern Europe/Russia, Latin America, the Middle East and Africa raised over $59 billion in capital in 2007. Full details on fundraising by region and overall trends are available as part of the press release from the Emerging Markets Private Equity Association (EMPEA).

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 25, 2008

Why SWFs are targeting US financials?

This New York Times article on the burning questions surrounding Sovereign Wealth Funds provides an educated guess why these funds are going after financial services companies.
Sovereign wealth fund investment may benefit these financial companies by opening up doors in the fund’s countries for business. However, it also establishes a friendly shareholder position in the company. These sovereign wealth funds are taking mostly non-voting positions and even those that have a vote will lack a right to a designated board seat.

...As these funds grow and begin to invest further with their newfound financial partners, expect them to further branch out and take larger, voting positions in different industries. Sensitive industries, such as defense, technology, and transportation infrastructure will still remain problematic, so expect investment there to be limited and when done to be by sovereign wealth funds of our ostensible allies working with the pre-approval of the U.S. government.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

VC Market

The following companies are seeking capital for starting-up / expanding their operations:

08-02-20-1: Bangalore-based Healthcare firm seeks >$5-M to acquire and manage a stand alone doctor owned mid sized hospital and make them part of a retain hospital chain.

08-02-20-2: Hyderabad-based entrepreneur seeks <$100 K to develop a prototype for a framework that will provide next generation Application Development and bring down ADM costs by 70%. “This method of Application development has the potential to kill ERP products market” the entrepreneur claims.

08-01-09-1: Chennai-based start-up seeks <$1 M for producing algae-based bio-fuels

08-01-09-2: Bangalore-based company seeks $1-5 M for expanding specialized value-added services for the food retail and hospitality sector. The company serves as the exclusive Indian representative, importer and distributor of top food and beverage brands for a range of imported foods sector. The capital will be used to create a pan-India distribution infrastructure including cold chain and for working capital for increased stock holding in India.

08-02-13-1: US-based entrepreneur seeks <$1-M for marketing salary portal for Indian Professionals. The site provides salary comparison by city, skill, etc. as well as a Career Advice Blog.

08-02-13-2: Cochin-based mobile and Internet company seeks $1-5 M to scale up international marketing efforts. The company's solution already powers CNN-IBN's services and is soon set to power several mobile operators as a network solution.

08-01-02-1: Calicut-based Construction Company focusing on high end public construction works including dams, roads, bridges, canals, seawalls, etc. seeks >5M for procuring new contracts and investment into existing projects.

08-02-20-1: Bangalore-based Healthcare firm seeks >$5-M to acquire and manage a stand alone doctor owned mid sized hospital and make them part of a retain hospital chain.

08-02-20-2: Hyderabad-based entrepreneur seeks <$100 K to develop a prototype for a framework that will provide next generation Application Development and bring down ADM costs by 70%. “This method of Application development has the potential to kill ERP products market” the entrepreneur claims.

For more information about any of these companies, investors - who are subscribers to the Venture Intelligence service - can email the company code to vcmarket@ventureintelligence.in. To learn about our subscription services for investors, please visit our web site.

Are you an entrepreneur seeking capital? List your company in the Venture Intelligence VC Market using the form here

February 20, 2008

Equity Derivatives House of the Year! (A "Couldn't Resist" Post)

From Risk magazine's profile of the winner of its Equity Derivatives House of the Year-2008 (announced in January 2008).
Newspaper headlines in August were dominated by the credit markets - the rise in US subprime mortgage delinquencies, the nasty losses reported by banks, hedge funds and structured investment vehicles, and the sharp squeeze in liquidity. However, the equity markets also had a rough ride. Most notable was the plight of quantitative hedge fund strategies, many of which racked up sizeable mark-to-market losses in just a few days in early August. But the sharp rise in correlation and volatility also caused some pain for dealers.

With one of the largest exotics books on the Street, one would imagine that (the winning firm's) Corporate and Investment Banking would be licking its wounds and coping with hundreds of millions of euros in losses. There was some impact, but the losses have been relatively minor and entirely manageable, says Christophe Mianne, (the winning firm's) head of market activities, covering equity, derivatives, fixed income, currency and commodities.

"We managed the existing book very well because we decided some time before the crisis to be long volatility and be less sensitive to correlation, so the losses were minimal. We suffered on our statistical arbitrage trading activity, but that was just for one month, and minimal compared to some hedge funds or other banks. Overall, our trading activities will be approximately flat compared to last year, which is a good performance," remarks Mianne.

Any guesses on the winning firm?
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Société Générale!!! Yes, the same Société Générale of Jérôme Kerviel fame.

Hat tip: Marc Andreessen who categorizes this under "Great moments in journalism" (Ouch!)

Thanks also to Marc for pointing to The Daily Mash's hilarious "revelation" :
Friends of rogue trader Jerome Kerviel last night blamed his $7 billion losses on unbearable levels of stress brought on by a punishing 30 hour week.

Kerviel was known to start work as early as nine in the morning and still be at his desk at five or even five-thirty, often with just an hour and a half for lunch.

..."But Jerome was tied to that desk. One day I came back to the office at 3pm because I had forgotten my stupid little hat, and there he was, fast asleep on the photocopier.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 17, 2008

"China Investment Corp. is Most To-Be-Feared SWF"

Breakingviews.com has created a "Risk Index" that ranks the top 20 prominent Sovereign Wealth Funds (SWFs)" according to the potential risk they present to western interests". The index scores each fund on three criteria: Transparency (or the lack of it), Strategic Control (or the intent to acquire) and Political Threat. The higher the no. of points, higher the risk.

China Investment Corporation, the giant $200bn fund that recently acquired stakes in Morgan Stanley and Blackstone is top with 11 points. Anything in double digits is considered a high potential risk to western investor interests. But only two other funds are placed in this category: the Qatar Investment Authority and Venezuela's National Development Corporation both scored 10 points. All three scored high marks for lack of transparency.


Interestingly, the SWFs active in India - GIC & Temasek (Singapore), Istithmar (Dubai), Dubai International Capital and Khazanah Nasional (Malaysia) - figure quite low on the list. Click Here to read what Breakingviews.com has to say about them.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 15, 2008

Trouble at Indian commodities markets?

Businessworld has a cover story on the functioning (or the lack thereof) of Indian commodities markets.

The government, for its part, has erected artificial barriers such as hedging limits through the FMC, rendering the market platform useless in many cases. For instance, Indian companies manufacture 28 million tonnes of sugar annually but the hedging limit per company is just 10,000 tonnes. “A company wants to hedge its future production today to ensure that a downward price movement doesn’t hurt it. Sugar is produced only four months in a year and sold throughout. It is ridiculous to impose a limit of 10,000 tonnes on say, Bajaj Hindusthan, which has a capacity of two million tonnes a year!” says Kiran Wadhwana of International Trading Co, which advises companies on hedging practices.

...The increasingly unhealthy rivalry between NCDEX and MCX only worsens matters. Their opposing views on vital issues, such as public listing, delay policy decisions. NCDEX believes that markets have not matured. It sees an exchange as the first-level regulator and vetoes listing at this stage of development. MCX, on the other hand, sites listing of exchanges world over, interpreting this as a readiness for public or investor scrutiny. NCDEX surely has a tough job on its hands, more so because of the number of agri-commodities it has thrown open for trading. Its rival MCX, which strategically focuses mostly on metals, and within metals, on bullion, does not face delivery or price discovery problems.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 14, 2008

Will the new Competition Act slowdown M&As?

Businessworld has a cover story on the issue.
What India Inc. seems to agree on is that the most retrograde aspect of the law is its view on mergers and acquisitions (M&As). Except for some notable exceptions, such as Rajiv Kumar, chief executive officer of the Indian Council for Research on International Economic Relations (ICRIER), and Subir Gokarn, chief economist with Standard & Poor Asia Pacific, most CEOs say the Act would deter M&A activity.

Under the law, which was drafted by the Ministry of Corporate Affairs, all M&As in India with a combined turnover of Rs 3,000 crore, or assets in excess of Rs 1,000 crore, will have to be mandatorily reported to the CCI, which will then decide whether to clear them. More significantly, there is also a separate threshold for group turnover (Rs 12,000 crore) and assets (Rs 4,000 crore) specified by the Act.

...The biggest flaw in the Act is that it regulates M&As solely on the basis of the asset size and revenue of the parties involved, not the size of the deal, says Sunil Mittal, chairman and managing director of Bharti Airtel and President of CII. Mohandas Pai, director, human resources at Infosys Technologies Ltd, agrees, “A revenue threshold does not make any sense. The transaction size too should be looked at.” Executives also point to the US’s Hart-Scott-Rodino Act, which uses a two-step test to judge mergers — the size of the transaction and the size of the companies making the deal. This also serves as a filtering device by excluding small transactions from the regulator’s review.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

Stephen Schwarzmann profile in New Yorker

The New Yorker has a lengthy profile of Stephen A. Schwarzman, the chairman and chief executive of the Blackstone Group.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 09, 2008

Impact of the IPO pullouts

Here are the takes of two market observers on the pulling of the Wockhardt Hospitals and Emaar-MGF IPOs this week.

Arun Uday of HSBC PE points to the role of IPO rating agencies.
It’s been one hell of a week for the markets, swinging wildly like a yo-yo and if all that wasn’t enough, in the midst of it, we have the Wockhardt IPO fiasco. I can’t recall any other instance in recent memory when such a renowned company had to withdraw its IPO the way Wockhardt has had to. While the management of the company has blamed it on the prevailing weak market sentiment, it’s clear that there’s more to it and that someone somewhere was being overambitious. It’s just incidental that I have been contemplating and blogging on the interplay between perceptual (or “synthetic” as I referred to it earlier) reality and fundamental reality, and in this case, its quite obvious that there was a huge disconnect between the two.

...one of the serious lapses that needs introspection from the regulators is the role of the newly introduced IPO rating agencies. The IPO had been given a 4 on 5 rating, which meant that it had been charecterized as “above average”. The sub prime crisis has already put the rating industry in the US in a cloud and both the regulator and the agencies themselves need to ensure that this nascent move in India doesn’t lose credibility and fall flat because of events such as this. Would like to end with this quote from a conference call with S&P where they were asked by a hedge fund manager who was referring to the agency’s move to downgrade billions of dollars of mortgage-backed securities. He said, “I’d like to understand why you’re making this move today and why you didn’t do this many, many months ago.” “It’s a good question,” responded the S&P analyst.“You need to have a better answer,” said the fund manager.


"Fairval" expects a "double whammy" impact for Real Estate companies.
Let’s look at the implications. Withdrawal of issues clearly has the potential to delay capital investment plans not only of the two companies in question, but of others lined up to tap the markets in the next few months. It is quite possible that over 2008, Indian IPO markets see far less capital raising then originally envisaged. Emaar’s IPO itself was planning to raise around $1.5bn. Let’s say equity capital raising gets impacted by $3-5bn. Count the debt this equity may have supported, and capital available to companies could easily have reduced by around $10bn, just because of events of last week. Next 1-2 months will be crucial. If this temporary setback assumes larger proportions, then it could start having ripple effects on the broader economic scenario.

...Correction in real estate sector is another likely possibility. Real estate companies may face a double whammy. As it is, consumer demand has slowed down, since prices are unrealistic both in housing and commercial real estate. Builders have been able to hold prices, since they have had abundant access to capital in the last 1-2 years. In other words, they have had the ability to hold stock. Now, they may face capital starvation for some time.

One can safely assume that no real estate company would dare to tap domestic capital markets for the next 3-6 months, till a credible sector leader tests the market and brings investor confidence back to the sector. Most real estate companies are highly committed at this point. Their sky high valuations are built on ultra-aggressive growth projections, to deliver which have huge need for capital. If, due to the Emaar-MGF fiasco, these companies get temporarily starved of capital, then their bargaining power vis-à-vis consumer may come down sharply. While this may lead to a massacre in real estate stocks, for the real economy, it will be good. Lower price for consumers of housing and commercial real estate is far more important than high prices for investors in real estate stocks.


Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 08, 2008

US buyouts will bounce back in 6-9 months: David Rubenstein

Extracts from Knowledge@Wharton synopsis of the Carlye Group founder's recent speech.
According to Rubenstein, the 1970s and 1980s were the "Bronze Age" of private equity, when early buyout deals emerged, culminating in 1989 with Kohlberg Kravis Roberts' leveraged buyout of RJR Nabisco and then the collapse of the proposed buyout of United Airlines. After the recessionary period of 1991 to 1992, private equity entered what Rubenstein calls the industry's "Silver Age." During this time, buyout deals grew larger, sellers turned to private equity as a way to liquidate holdings and sponsors were able to prove their ability to transform companies and earn handsome returns. That era, he said, ended when the technology bubble burst in 2000.

After a two-year break, private equity then entered what Rubenstein calls its "Golden Age," as deals grew to enormous size and private equity firms teamed together in so-called "club" deals to take over ever-larger companies. With the current credit crisis, private equity deals have slowed dramatically. Rubenstein told the audience that in order to revive the industry, private equity sponsors will need to scale back the size of deals, reduce leverage and look overseas for opportunities in countries such as India and China.

"Once a period of time is over, once the debt on the banks' books is sold and new lending begins in six to nine months, I think you will see private equity coming back in a Platinum Age, better than ever before," he predicted.
Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 05, 2008

Sovereign Funds: The BusinessWeek take

Extracts from BusinessWeek's article on the favorite business/market topic these days: Sovereign Funds
The fund managers insist that Western businessmen and politicians have nothing to fear. Al Sa'ad ticks off a well-rehearsed list of reasons why CEOs should rejoice at the prospect of having Kuwait as a major shareholder. Reason 1: His fund will agree to multiyear lockups, providing long-term capital. Reason 2: Al Sa'ad expresses concerns to CEOs behind closed doors, not in the press. "If I were a CEO, I'd look for stability," he says.

But recent actions by some funds belie those soothing sentiments. The $50 billion Qatar Investment Authority, run by Qatar's Prime Minister, Sheikh Hamad bin Jassim bin Jabir al-Thani, is working with hedge fund activist Nelson Peltz to shake up British beverage company Cadbury Schweppes (CSG). Dubai Holding was so aggressive in its pursuit of OMX Group of Sweden last summer that it ran afoul of regulators there. Even companies that do business with Gulf funds are on alert. Dubai International Capital, which manages a $12 billion fund for Dubai's ruler, Sheikh Mohammed bin Rashid Al Maktoum, flabbergasted Wall Street last fall when its chief, Sameer Al Ansari, shot off letters to Morgan Stanley (MS), UBS (UBS), Goldman Sachs (GS), Citigroup (C), and other top investment banks asking them to pony up $50 million each for a new fund or risk losing future business. Several, including Goldman and UBS, complied. "So far," says Roger Altman, chairman of Evercore Partners (EVR) and a former U.S. Deputy Treasury Secretary, "sovereign wealth funds have been more stabilizing than otherwise. But everyone is waiting to see how this evolves."

...As the credit crisis deepens, investment banks and private equity firms are stepping away from dealmaking to nurse their wounds. Gulf funds are eagerly filling the void. "Sovereign funds have been shown every interesting idea in the last quarter," says Jeff Holzschuh, a Morgan Stanley banker who advised buyout firms on the TXU sale. "There is no question that they will change the deal world." But there is a question as to whether the change will be for the better. "This is capital we need desperately," says Felix Rohatyn, former Lazard Frères managing director and U.S. Ambassador to France. "But I don't think we should have any illusions that these are totally benign investments."

February 02, 2008

Why Real Estate firms are bidding to become telcos

Businessworld has an interview with Unitech’s Managing Director Sanjay Chandra on this topic.

Q: In a sense, telecom is just like the real-estate business. You are capturing a fixed commodity (spectrum).
A: Yes (laughs). Instead of a land bank we are now managing an ‘air’ bank.

...Q: Are you planning to bid for wireless broadband?
A: We want to put our foot in the door and enter the business before we look at other options. I am sure we will look at that. We will look at 3G.

Q: Being successful with that will require real competence.
A: Yes, we are meeting lots of people and reading up. And it is still confusing. I think data is going to be big. CDMA is better for data. But India is seeing a GSM rush. Our services will be on GSM. We won’t be bidding for CDMA licences.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.

February 01, 2008

Sequoia, UTI Ventures and ChrysCapital win APEX Awards

Sequoia Capital India, UTI Ventures and ChrysCapital emerged as the leading Private Equity/Venture Capital firms in various categories at the Second Edition of the Venture Intelligence APEX Awards.

While ChrysCapital topped in the Private Equity firm category for 2007, UTI Ventures emerged as the winner in the Private Equity Firm-Growth category and Sequoia Capital India took home the award in the Best Venture Capital Firm category.

Among PE/VC-backed companies, Genpact received the Private Equity-backed Company award, Firstsource the Private Equity-backed Company–Growth award and MindTree Consulting was adjudged the Best Venture Capital-backed Company.



Sumir Chadha of Sequoia Capital India receiving the Best VC Award from B. Anantharaman of Max India



Raja Kumar and other members of the UTI Ventures team receiving the Best PE Firm-Growth Award



Gaurav Ahuja of ChrysCapital receiving the Best PE Firm Award



Krishnakumar Natarajan of MindTree receiving the Best VC-backed Company Award from Mofatraj Munot of Kalpataru Group



Farid Kazani of Firstsource receiving the Best PE-backed Company (Growth) award



Arjun Vaidyanathan from Genpact receiving the Best PE-backed Company award

The awards were given away at Venture Intelligence APEX ‘08, an annual conclave where the Indian Private Equity industry introspects, brainstorms on the way forward and rewards its best. The jury members for the awards included some of the most experienced investors in India-focused funds including Jay Jegannathan of Evolvence India Fund, Brian Lim of CDC Group, Anand Sunderji of Thomas Weisel International, Kit Jong Tan of Eagle Captial Partners, Pavan Gupte of Gartmore Private Equity and Wen Tan of Squadron Capital.

“On the back of strong economic growth and booming public markets, Indian Private Equity and Venture Capital funds delivered strong returns to investors in 2007,” said Arun Natarajan of Venture Intelligence. “The Venture Intelligence APEX Awards are a recognition of this rapid coming of age of the Indian PE/VC industry.”

About Venture Intelligence

Venture Intelligence, a division of Chennai, India-based TSJ Media Pvt. Ltd., is the leading provider of information and networking services to the Private Equity and Venture Capital ecosystem in India. For more information, please visit http://www.ventureintelligence.in