Singapore listed private equity firm TIH has moved to establish an India-focused joint venture to capitalise on opportunities it is anticipating following the May election success of Narendra Modi’s Bharatiya Janata Party.
The firm, a closed-end fund initially launched in 1994, has signed a memorandum of understanding (MoU) with the Asian arm of multi-billion-dollar conglomerate Comcraft Group to make equity and debt-related finance investments in the country.
Comcraft has been investing in India for more than 50 years, including in steel, plastics, auto components and information technology. TIH is aiming to tap its local knowledge and network, with a focus on $20-50 million mid-market equity deals.
As a company TIH has invested in a variety of sectors, typically making cross-border Asian investments and divestments including restructurings, mergers and acquisitions, joint ventures and turnaround opportunities.
Its wholly owned subsidiary, TIH Investment Management, applied to the Monetary Authority of Singapore (MAS) earlier this year for a capital markets services (CMS) licence for fund management. If granted, it plans to turn the JV into an Indian opportunity fund.
Both TIH and Comcraft would become anchor investors in the fund, which would also be opened up to third-party investors on receipt of the CMS licence. The fund would be managed by TIH Investment Management, with support from Comcraft.
Allen Wang, appointed chief executive of TIH Investment Management this June based in Singapore, told AsianInvestor the JV would go ahead with or without a CMS licence.
He suggested the JV’s PE deal sizes could be increased using leverage, an approach he admitted was little used in India but happening more across the region.
“We are actively looking at secondary portfolios,” Wang said, noting that until recently low stock-market valuations had posed a difficult environment for private equity investors in India to exit holdings.
However, India’s benchmark equity indices have rebounded strongly since 2012, resulting in a raft of initial public offerings as investors rushed to exit. The S&P BSE Sensex Index is up 70% since May 2012 and 31.7% year-to-date.
Foreign institutional investor ownership of the top 200 stocks on the Bombay Stock Exchange (BSE) rose to an all-time high of 21.4% as at the end of September this year.
At the same time, Indian mutual fund investors bought $4 billion worth of domestic equities between the election this May and end-September – ending a near five-year period when they were net sellers.
But recent stock market volatility has highlighted the need to look at trade sales Also as a means to exit. “The primary focus will be trade sales, followed by IPOs,” said Wang.
But he is bullish on positive market sentiment following the election. A November 7 report from Australian bank Macquarie highlights how India’s Modi-led government has made progress on initiating reforms since assuming office in May (see table, below).
Macquarie forecasts that India will attain a GDP growth rate of 7-7.5% for fiscal 2017-19. “People on the ground suggest that Modi can deliver,” said Wang, pointing to opportunities in infrastructure and “anything to do with domestic consumption” amid market reform.
The new joint venture adds India to the Asian markets that TIH is already active in, which include China, Indonesia, the Philippines and Thailand.
“The India JV aims to initiate strategic M&A opportunities to accelerate the growth potential and improve valuations of investee companies,” explained Wang. “We will also explore opportunities to link Indian investee companies to strategic partners outside India, especially for commercial expansion.”
He pointed in particular to activity between India and China. “Divestment of investee companies may be through a sale of an investment stake to strategic corporate companies in China and the rest of the world,” he said.