While a group approach in investment is not unusual in the private equity space (Temasek itself had invested in Matrix with Newbridge), the latest deal, which valued Bharti Infratel at Rs 40,000-50,000 crore, stands out for two reasons: first, an eight-way deal is a rarity all over the world; and second, it was the largest 'club deal' by private equities in India.
While Temasek put in Rs 2,000 crore (Rs 20 billion), US private equity firm Kohlberg Kravis Roberts & Co put in Rs 1,000 crore (Rs 10 billion) and the other six put together committed the balance Rs 1,600 crore (Rs 16 billion). The six firms are the Investment Corporation of Dubai (ICD), Goldman Sachs, Macquarie, AIF Capital, Citigroup and India Equity Partners (IEP).
So why did so many PEs band together when most of them have enough capital to do the deals on their own? Manish Kejriwal, senior managing director and country head, Temasek Holdings India, said his company could have easily gone for the $1.2 billion deal on its own, but decided to go for a club deal as it "helps if you have more knowledge on board".
Though Temasek put in over seven months of pain-staking research before sealing the deal with Bharti, the tower business is still an "unknown entity," Kejriwal said. Industry watchers said clubbing is a good way of spreading the risk. Also, worldwide experience shows that clubbing affords firms the chance to do exceptionally large buyouts.
Globally, clubbing among private equity firms allows the participants to reduce the competition for acquisition targets and get better pricing. Kejriwal agrees that while PEs in India will continue to do deals on their own, the future could see more club deals.
The deal was a stand-out for another reason too. The eight PE firms were issued convertibles in lieu of their investments. The convertible is a kind of a preferred stock, which gives the owner the right to convert it into common shares of stock. But convertibles allow PEs an indirect say on operations and a promised return on investment. Convertibles can be converted into common stock at a price that is related to Infratel's IPO pricing and performance.
Meanwhile, Kejriwal said the private equity space in India is expected to see more action, with the entrepreneurs becoming more realistic in their valuations after the correction in the stock markets. He, however, feels there could be some more downward pressure in the markets before it stabilizes.
Four years after its debut in India, Temasek has already become the largest PE in India with around Rs 12,000 crore (Rs 120 billion) investment. The firm's biggest deal till date is its acquisition of a 4.99 per cent stake in Bharti AIrtel for around Rs 8,000 crore (Rs 80 billion) last year. South Asia, which includes India and Pakistan, now accounts for 4 per cent of its global investment portfolio.
On the perception that Temasek tends to take its time to evaluate deals, largely because it is accountable to Singapore's Ministry of Finance, Kejriwal said the criticism is belied by the swiftness with which the PE has snapped up deals in india over the past four years.
"The decisions are taken by professional managers Only deals above a certain threshold need to go to the eight-member board, which has just one representative from the Singapore government," he said.
The Singapore-headquartered firm manages a portfolio of over S$160 billion and its total shareholder returns since inception has been more than 18 per cent.
