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August 26, 2010

"Our India deal pipeline is getting stronger" - Interview with Christopher Nicholas of JP Morgan

Venture Intelligence recently spoke to Christopher Nicholas, Head of JP Morgan’s Global Special Opportunities Group, the firm’s principal investment unit. Nicholas has spent 22 out of his 27 years of professional experience working in Asia. He joined the JP Morgan in 1998 as part of the Emerging Market global franchise. Until June 2004 he was responsible for leading JP Morgan’s credit business in the Asian region, with responsibility for sales, trading, syndication and research. Since then, Nicholas has focused on the firm’s growth in the distressed debt and principal investment arenas.

Venture Intelligence: While JP Morgan has recently exited its proprietary PE and hedge fund businesses in other parts of the world, the Asia PE unit was retained. What was the thinking behind making this exception?

Christopher Nicholas: JP Morgan has looked at the opportunities today and adjusted its business model to keep moving forward. The Asia unit has been in operation for 11 years, with good investment return track record and fantastic relationships with investee companies. Recently, like other financial institutions, we have been sensitive to the changing regulatory environment especially in the US. Our business model though will likely survive in a similar form with limited adjustment. India and China will stand out with their prominence and priority in our Asian operations.

VI: JP Morgan doesn’t seem to have been very active with investments in India during the last couple of years. Is this set to change now?

India was somewhat insulated from the global credit crisis – so, sitting on a pool of capital, we were seeing better value in other countries and were able to deploy our capital at significant rates of return. These types of opportunities and returns weren’t present in India for all the right reasons. Secondly, India has now a fairly healthy private capital investor pool which makes investments in certain sectors quite competitive. This was not the case even five years ago. Also, we rarely view an investment as a one off transaction; we want our commitments to be interpreted as an investment in a partnership and a catalyst for further transactions.

Currently, given the risk-return parameters on offer over a range of different geographies, India is looking attractive again, and that’s why a healthy pipeline exists for the near future. We have a number of transactions which have a high probability of closing.

VI: Which industries and sectors appeal the most to you in India?

We have always been of the attitude that good companies exist in “bad sectors” and vice-versa. When you have a very strict mandate that forces you to invest in particular sectors, coupled with the pressure to put money to work, it leads to marginal investing. We don’t have that pressure and we have a greater degree of flexibility afforded to us by the bank. We want to remain broad; even with a negative macro view on a sector, you may encounter very good companies worth pursuing.

If you take a sector like power, there are many potential investors and an awful lot of transactions and rates of return have fallen almost month by month, which may not justify the associated risks. Having said that, there are certain sponsors (promoters) in that sector, I would still be happy to do business with tomorrow.

VI: Does that flexibility apply to the ticket size of investments as well?

No, our typical ticket size is in the $50-75 million range, but that does not exclude us from making larger transactions than that.

VI: Will you focus on minority-growth type investments or would you look actively at buyouts and distressed deals?

While minority investments will continue to dominate in India, our past investments in distressed situations - I would prefer to call them “impaired opportunities” - have been successful and we would like to do more. However there is a lack of such opportunities in India as compared with other geographies post credit crisis. In summary, the greatest opportunities are likely to be minority investments along with selective investments in distressed/impaired companies..

VI: How about the listed companies space?

You do have more challenges looking at investments into public companies. The most notable challenge we face with respect to public companies is liquidity. A large number of public companies in India aren’t very liquid. Even with a listing it can be difficult to exit through the public market, whereas with a private company we will often negotiate with our partners a number of exit routes which gives us the required flexibility.

VI: How does India compare to China in your portfolio?

We have more exposure in India than China today, but I will also add that India and China are the biggest components of our Asia portfolio which also includes important countries like Japan and Australia. However given the growth rates in India and China, which we believe are set to continue, we have no other choice than to remain focused on these two countries.

VI: What differences do you see in the nature of opportunities in India and China?

Currently, the deal ticket sizes in China are significantly larger than what we are seeing in India. We have 5-6 investments in our pipeline in China - all falling in the $75–200 million range. But that tends to be a moving barometer; if you had asked the question two years ago, I would have said the deal sizes in the two countries were comparable; if you had asked me four years ago, I would have said the deals sizes were larger in India than in China. I do believe given the capital needs coming up in India, I can very easily see some of the larger tickets also being written here.

August 23, 2010

SKS Microfinance: The Private Equity Story

Between March 2006 and Nov 2008, SKS Microfinance received investments of $111 million from Private Equity – the largest by any company in this sector. PE investors in the company (not including pre-IPO placements) include Unitus, Sequoia Capital India, SVB, Sandstone Capital, Vinod Khosla’s Khosla Ventures and Kismet Capital.


Unitus and Vinod Khosla invest $0.5 million each for a total stake of 30.18%.

Company Valuation: $3.3 Million


Sequoia Capital India, Unitus, Vinod Khosla and Odyssey Capital invest as part of a $12 million round. Shares are issued at Rs.49.77 per share. Of this, Sequoia invests $6.2 M for 20.38% stake, while Unitus and Vinod Khosla invested $1.5 million for 4.95% each; Odyssey Capital invests $1 million for 3.35%.

Company Valuation: $30.3 Million


Sequoia Capital India, SVB, Unitus, Kismet Capital and Vinod Khosla invest $23 million for a 28.86% stake. Shares were issued at Rs.70.67 per share. Of this, Sequoia Capital India invests $11 million and Unitus invests $4 million.

Company Valuation: $79.7 Million

September - 2008

Sequoia invests $1.87 million for 1.5% by purchasing 818,069 shares from SKS founder Vikram Akula at Rs. 103.91 per share.

Company Valuation: $124.7 Million


Sandstone Capital, Kismet Capital and SVB invest $75 million for 20.58% (upon conversion in Dec-09).

Issue of CCPS to Sandstone worth $40 million (6,256,344 Shares), Kismet Capital $17 million (2,655,131 Shares), SVB $1.5million (244,150 Shares) converted on December- 2009. Also allotment of equity shares to Sandstone for $13 million (2,085,448 Shares), Kismet Capital for $5.5 million (885,044 Shares), SVB for $0.5 million (81,383 Shares) at Rs 300 per share

Company Valuation: $364.4 Million

July -2009

Sequoia (along with SVB) a further $9.8 million for 3% stake by purchasing 2 million shares from Unitus at Rs 240 per share.

The IPO – August 2010

The company sells 16,791,579 shares, over half of which (9,346,256 shares) were sold by existing share holders) diluting 21.6% of the company. Shares are issued at Rs.985 per share

Company Valuation: $738 million

PE Investors who sold as part of IPO


Number of Share Sold

Amount Realized via IPO
(INR Crore)

Total Investment
(INR Crore)

Sequoia Capital India








The Returns Each Investor Is Sitting On…


Value of Shares at IPO (INR Crore)


(INR Crore)

Return Multiple*

Sequoia Capital**



11.08 X




3.28 X

Vinod Khosla



28.86 X

Kismet Capital**



3.39 X




16.48 X

* At the time of the IPO and assuming they are able to sell at least at the IPO price.

** Part exited via IPO / prior to IPO

More information about this and other PE investments and exits are available as part of the Venture Intelligence Private Equity Deal Database, India's first and largest such database.

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