Fwd: (BN) Hedge Funds Offering Stakes in Indian Companies to Private Equity, 3i Says

Subject: (BN) Hedge Funds Offering Stakes in Indian Companies to Private Equity, 3i Says

Hedge Funds Offering India Companies to Private Equity, 3i Says

March 3 (Bloomberg) -- Private-equity investors are being offered stakes in Indian companies as hedge funds and banks seek to offload assets, said an executive at 3i Group Plc.

Hedge funds and banks that bought minority stakes in Indian firms in recent years are finding it hard to unwind their investments because the "listed market is dead," said Anil Ahuja, who heads the Asian business of the London-based private- equity firm. 3i has poured more than $2 billion into Asia since 2006, and last month invested $161 million in Krishnapatnam Port Company Ltd., its third infrastructure investment in the nation.

"There's a whole new slew of transactions that are starting to be discussed where people who need the capital are offloading stakes which they hold in unlisted companies," he said, declining to name the companies.

The offers could ease a slowdown in private-equity sales as stakes are offloaded for less than what management of the companies are prepared to accept, Ahuja said. Private-equity investments in India may fall to as low as $5 billion this year, according to estimates by TPG Inc. and Bain Capital executives at an industry conference in Mumbai last month. That would be less than half the $10.7 billion invested in 2008, based on estimates from the Asian Venture Capital Journal.

Initial share sales by Indian companies fell 46 percent to 183 billion rupees ($3.5 billion) in 2008, making it harder for private-equity investors, banks and hedge funds to cash out their investments. The benchmark Sensitive Index tumbled a record 52 percent last year.

Bull Market Reverses

During India's five-year bull market, private-equity investors faced competition for stakes in companies from hedge funds, including San Francisco-based Farallon Capital Management LLC and New York-based D.E. Shaw & Co. While private-equity firms typically take stakes in companies that need cash to expand and seek to exit the investment over a set time frame, hedge funds can invest for any length of time, change their investment strategies, and have ready access to a pool of funds.

That's unwinding as investors pull money from hedge funds, forcing managers to dump assets. At the same time, global banks and insurers are selling assets after amassing $1.2 trillion of credit losses and writedowns since the start of 2007.

Private-equity investors will hold on to their stakes in companies for two years longer than they would normally as the global economy nears a standstill, Ahuja said. Private-equity funds exiting investments via IPOs in the Asia-Pacific region slumped 77 percent to $15.2 billion last year as stock markets hit record lows, according to the Asian Venture Capital Journal.

"We're not going to sell those stakes in a hurry," Ahuja said. "You're just getting a dead period in the markets where the companies' growth plans will not be executed."

To contact the reporter on this story: Netty Ismail in Singapore nismail3@bloomberg.net .