Julie Kenny on Private Equity Uncertainty in India

Ratan Tata

Julie Kenny

India remains the preferred destination for Private equity and Venture Capital. Not only the mid market but also big multinationals prefer India over China. According to private equity clients at EFS Consultants Private Equity Firm, India is the best emerging market for their investments. India is on the verge of getting its act together and the smart money knows it, says Julie Kenny in an interview to the Times of India, head of the international private equity group at EFS Consultants in Mumbai. Yes, regulatory uncertainty and corruption is still a problem, but India is moving into the right direction and returns are dramatically higher than in other parts of the world. Demand and supply gaps in some elementary sectors are astonishing for us Europeans. These gaps, for example in Energy, have to be closed. The government has to implement and supervise policymaking in order to retain its justification and voters confidence. For instance the IRR in the renewable energy sector ranges between 20% and 30%, this is highly lucrative for our clients. Julie Kenny said.

It is true, some sectors growth have slowed down and the ongoing liquidity crisis in the US and Europe is taking its toll, but business in India is buoyant and will remains so for many years to come. Particularly European Funds are leaving EU shores behind in search for capital enhancing investments. Those in the know, know where to put their money. State-run Power Finance Corp will float a billion dollar private equity fund with Tata Capital, its chairman and managing director Satnam Singh said on Friday. PFC will own 49% in the joint venture fund while Tata Capital will hold the majority stake. Singh also said that the company will reduce lending rates as the company expects to raise cheaper loans. Ratan Tata says: We need to close any supply and demand gap that may hinder growth in India. Business leaders are so confident that Indian companies are increasingly looking to buy businesses in Europe and the U.S., especially for the (BPO) businesses process outsourcing market. Regulatory uncertainty is a problem. At the beginning of the year, New Delhi politicians confirmed they would allow for multinationals and foreign investors in general, including private equity firms, to acquire multi-brand retail outlets. Then this was retracted, a few months later, talks fell flat. Not until August did the New Delhi parliament pass legislation allowing foreigners to buy into both retail and acquire stakes in privately owned airline companies. However, there are some politicians vowing that if they ever got elected they would overturn this. And dont forget there is the famous Vodaphone versus India case, where Vodaphone was hammered with a $2.5 billion tax bill on a former company acquisition where that tax rule was not law. This particular case is a good example on demonstrating the aggressive drive that the Indian tax authorities have embarked on in assessing taxes on transactions that they believe have a nexus with India, and how they continue to repeatedly attempt to narrow the protection afforded by tax treaties with other countries. These developments are of interest to portfolio investors, if the company they are investing in can get reigned in by such tax rulings. For private equity firms, the reliability of the regulatory framework is paramount. It means predictability and

security. It means more money for India. More money for India means higher growth and, in turn, increases of standard of living, in theory, for the country as a whole. For top down investors, the more money flowing into India real assets (as opposed to speculative assets) the better the outlook for the country. The government knows this as did the fathers of the treaty arrangements. Lets hope the politicians will remember in time. The smart money might be more enamored by India than China, says Julie Kenny, who was chairing the fourth Annual Emerging Markets Summit, Investing: India and Beyond in London last Tuesday. India is also the preferred choice for Ruchir Sharma head of emerging markets equity at Morgan Stanley Investment Management. His argument is for the portfolio investor and corporate investor alike. In India there is no middle income trap. In India per capita GDP is under USD 5,000.00 a year. Middle India is hungry for growth and personal betterment. This will not change in the foreseeable future. Author: Paul Jennings & Ankesh Kumar