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July 13, 2011

Fund Manager Interview: Nainesh Jaisingh of StanChart Private Equity

After focusing substantially on exits in 2010 (when it successfully exited its investments in Mahindra Finance and ABG Shipyard), StanChart PE has announced four new investments in the first half of 2011 (in GMR Airports, Bush Foods, Privi Organics and Innoventive Industries). Three of its other portfolio companies – Endurance Technologies, Powerica and Intergloble Technology - are on the IPO path.

Venture Intelligence spoke to Nainesh Jaisingh, Managing Director of Standard Chartered Private Equity, who heads the bank’s proprietary PE investments team in India on the firm’s recent moves and his views on the current PE investing landscape in India.

This interview first appeared in the latest issue of the Venture Intelligence India Private Equity Roundup Report.

Venture Intelligence: In 2010, StanChart PE announced only one investment - the syndicated $217-M round in Coffee Day Resorts – but, this year, you have already announced four new ones. What’s changed in your outlook?

Nainesh Jaisingh:
The sort of activity you see from us is function of what‘s going on in the broader markets. Based on the deal environment and the available opportunities, we close new transactions and focus on making good exits at the right time. For instance, in the second half of 2010, we exited $150-175 million worth in just one company, Mahindra Finance, and that investment did very well for us. Similarly with ABG Shipyard. We also sold a large portion of our holding in ABG Shipyard in the second half of 2010 when the markets were looking good. Now, that the stock market is somewhat tentative, it’s a good time to make new investments in the capital requirements of companies. Hence the accelerated pace in investments.

The good part about our structure is that there is no country wise allocation. This way, you are able to exercise the discipline of investing in a country when it is attractive on its own merits and be able to exit those investments when the country is overpriced and not worry about having some committed capital to put out there.

VI: What is your sweet spot in terms of ticket size?

From having a $100 million fund for India in the early part of the decade - which was considered largish – we are deploying that kind of capital in a single transaction today! Clearly, the deal sizes in the country have grown and, in my view, will continue to grow. Ideally, we would look at something around $50 million or more. But, there are opportunities across the spectrum and many young companies might need less capital, but the potential for growth is very large. Which is why recently, we have set up a dedicated mezzanine fund to do quasi-equity structures targeting returns of just under 20% (as opposed to pure Private Equity where returns of at least 25% is targeted). This way, using various capital structures and deal sizes, we can target opportunities at all deal sizes.

VI: What sectors appeal the most to you currently?

As a sector agnostic fund we do not have any sectors that we will not look at (minus Real Estate which is handled by a different Asia-wide team). There are several sectors within the two broad themes of Infrastructure and Consumer which are obviously interesting, but a lot of them are well mapped by the PE industry – so, the challenge is to find the right place in the value chain also ensuring that it is not over-valued owing to competitive pressure. We also need to look at what sort of value we can bring to that company because the days of putting in the money and waiting for the public markets to rerate the company are gone. Now, we need to work closely with the companies to help them execute on their 3-5 year strategic plans.

VI: What is your firm’s view on investing in the listed and unlisted universe?

We will do all kinds of transactions – listed or unlisted, primary or secondary does not matter much as long as it meets the criteria of having a good business model and we have the engagement and influence with management. . In fact, we have also invested in unconventional opportunities which have done very well for us.

VI: There are a few public market bank stocks where StanChart PE has invested (Karur Vysya Bank and IOB in 2009; Federal Bank in 2007.) Are these done by your team?

Yes. But these investments come out of a separate bucket and were opportunistic in nature.

VI: In some of your earlier investments like Endurance Technologies (an auto components firm), StanChart was actively involved in their overseas acquisitions. Post financial crisis, do you actively assist in cross-border acquisitions and how does the parent get involved?

While not necessarily always on acquisitions, we actively help the portfolio companies relook at their strategies. For instance, at Powerica (a power generator maker), their core business was throwing off surplus cash and we worked actively with them in strategizing and helping deploy that surplus in the new area of wind power. This is already working well and is set to significant value to the company in the long term.

The Bank of course has a strong acquisition financing business and that expertise is available to be leveraged based on the fit for the portfolio company and the relevant part of the bank.

VI: How does India compare vis-a-vis China in your portfolio?

While the size of our portfolio in both countries is roughly the same, the number of companies of scale which are not yet listed is quite large in China, making it a good pool for Private Equity investors to fish in. The market there is also less competitive in terms of the structuring and negotiations of transactions that happens in India (where promoters too tend to be very financially savvy).

VI: What is your reading of the fund raising environment for India/Asia-dedicated funds?

Less than a decade ago, there were very few players in the Indian market. Investors from the West used to complain about how difficult it was to do PE-type transactions in Asia, let alone India. In 2005-06, once news spread about the big exit from Bharti-Airtel and a couple of other ones, the Indian market started getting rerated and the people started investing into the country very enthusiastically. But, if you talk to LPs today, they will tell you that most of their India portfolios have had indifferent returns and, in some cases, negative returns. That’s why we are seeing so much churn in the industry - fund teams splitting to pursue different models, etc.

In my reading, the best way to deliver is to by sticking to the top players in your target sectors, applying your strategy consistently in terms of working closely with portfolio companies and timing your entry and exit appropriately. Those things come only through seasoning and having a team that has been through cycles.