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Weekly Indian Economic Review


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Weekely Economy review

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Weekly Indian Economic Review

  1. 1. Top HeadlinesLightspeed Raising $675M New Global Fund; AppointsIndia PrincipalMorgan Stanley To Trim Fees, Size Of $4.7b PropertyMegafundCanaan Partners Raises $600M Fund; To Invest In Tech,Healthcare CosKejriwals Kedaara Capital To Invest in Spin-offs; Eyes $75-100M DealsIL&FS Buys 9.4% In India bulls’ Mumbai Real EstateProject For $38.5MPE-backed Dalmia Bharat To Buy Up To 50% In CalcomCement For $46MIEP Raising $500M Fund, Gets Initial Commitment For AQuarterRCOM Eyes $1.5B Singapore IPO For Undersea Cable UnitRed Fort Capital Raises $500M For Second Realty FundR-Cap sells 26% stake in MF arm to Nippon LifeVodafone wins Rs 11000cr tax case in SC 1
  2. 2. Weekly Executive SummaryFood inflation remained in the negative zone for the third straight week, at (-)0.42 per cent for the week ended January 7, mainly due to a fall in the prices ofonions and vegetables. Food inflation, as measured by the Wholesale PriceIndex (WPI), was at (-) 2.9 per cent in the previous week. It was above 16 percent in the corresponding week of 2011.Investors may not have had great expectations from Reliance Industries thisquarter, but the company still did worse than most estimates. Net profit forthe December quarter dropped 14% to Rs4, 440crore. That was on a growthin net sales to Rs85, 135crore from Rs59, 789crorein the same period lastyear. This is the first time RIL has seen its net profit fall in more than twoyears. The company has been hit by a steep 63% rise in raw materials costs.And the decline of the rupee didn’t help either, since RIL has to import oil forits refinery in Jamnagar.And RIL also announced the details of its massive share buyback. It willpurchase its own shares worth up to Rs10, 440crore at a maximum price ofRs870 per share. The share buyback is seen as both a way to deploy excesscash and a move that can shore up the firm’s stocks.In other news, British firm Vodafone has won its massive dispute with India’stax department. On Friday the Supreme Court delivered its verdict in the case.The court ruled that the $11 billion deal between Vodafone and Hutchisonwas not taxable. And it called the deal a bona fide structured FDI into India.Back in 2007, Vodafone had bought Hutchison’s Indian operations through thesale of a company based in the Cayman Islands.Switching back to earnings, India’s biggest I-T firm has managed to keep upwith expectations. On Tuesday Tata Consultancy Services posted a 21.8%sequential jump in net profit for the third quarter. That was on a revenueincrease of 13.5% quarter-on-quarter. 2
  3. 3. Inside The StoryLight speed Raising $675M New Global Fund; AppointsIndia PrincipalLight speed Venture Partners, a global venture capital firm, is raising$675 million for its ninth fund, according to a filing with the U.S.Securities and Exchange Commission.Lightspeed is an active venturecapital investor in India and currently invests in the country from itsglobal fund. The VC firm has also boosted its India team by adding DevKhare as a Principal. Till recently, Khare was a vice-president withMenlo Park-based venture capital firm Venrock.The new fund’s target isaround 15 per cent lower than Light speed’s previous fund, whichraised $800 million in 2008. The seventh fund had raised $475 millionand Light speed currently has $2 billion under management.Morgan Stanley To Trim Fees, Size Of $4.7b PropertyMegafundInvestors have approved a year-long extension of a $4.7 billion propertymega fund from Morgan Stanley, a company spokesman told Reuters onFriday. The spokesman said the investment banks property asset-management arm had agreed to a "trimming of fees" in the fund, knownas Morgan Stanley Real Estate Fund VII Global. Morgan Stanley RealEstate Investing had also agreed to reduce the funds size by $700million, the spokesman said, adding that since the fund had not yetdrawn down all the cash from investors, it had agreed to a reduction incommitments rather than returning cash.The funds life was due to endthis June, but only 40 percent or about $1.9 billion of the money hadbeen put to work. The fund will now have until June 2013 to invest therest of what is now $4 billion in committed capital. 3
  4. 4. Canaan Partners Raises $600M Fund; To Invest In Tech,Healthcare CosSilicon Valley-based Canaan Partners have raised a $600 million (Rs3,198 crore) fund Canaan IX to invest in technology and healthcarecompanies. Two-third of the newly raised fund will be used to funddigital media, Internet, mobile and other technology companies whilethe rest is designated for pharmaceutical, medical device and healthcareinvestments, the statement adds. Healthcare companies face significantodds as they advance a promising technology towards FDA and clinicalmilestones crucial to a valuable exit, commented Wende Hutton,General Partner at Canaan Partners.Kejriwals Kedaara Capital To Invest in Spin-offs; Eyes $75-100M DealsKedaara Capital, a private equity fund manager set up by ManishKejriwal (the former head of Temasek India) and Sunish Sharma(former managing director of General Atlantic India), will largely focuson investing in carve-outs or spin-offs of large corporate and involvemore in operational responsibilities.Kedaara is adopting an investingstyle much on the lines of international private equity firm Clayton,Dubilier and Rice (CD&R) with which it has partnered for a $500 millionIndia-focused fund.While the nature of the partnership betweenKedaara and CD&R is not known, sources added that it would be moreon the lines of a JV. While Kedaara will prove to be an entry point forCD&R in India, which does not have an on-the-ground presence yet, thebulge-bracket private equity firm will provide Kedaara with not only abrand name but also access to Limited Partners (LPs) to help its debutfundraising. The investors in CD&R include endowments/ foundations,corporate pension funds, public pension funds, insurance companiesand financial institutions among others. 4
  5. 5. IL&FS Buys 9.4% In Indiabulls’ Mumbai Real Estate ProjectFor $38.5MIL&FS Private Equity has invested Rs 200 crore ($38.5 million) to buy9.36 per cent stake in India bulls Infraestate Ltd, a wholly owned specialpurpose vehicle (SPV) floated by India bulls Real Estate Ltd to develop arealty project on a parcel of land in Mumbai. The project is beingdeveloped on 8.39 acres of land at Lower Parel Division, Mumbai,earlier occupied by Bharat Textile Mills. In a stock market disclosure,India bulls Real Estate said that IL&FS Trust Company Ltd and its groupof investors – namely, IIRF India Realty XXI Ltd and Little Fairy Ltd –have invested an aggregate of Rs 200 crore through subscription toequity in IBREL SPV. IL&FS PE is the country’s largest home-grownprivate equity firm by assets under management.PE-backed Dalmia Bharat To Buy Up To 50% In CalcomCement For $46MActis-backed Dalmia Bharat Enterprises Ltd (DBEL) is expanding itscement business with its subsidiary Dalmia Cement (Bharat) Ltd,striking a deal to acquire up to 50 per cent of Kolkata-based CalcomCement India Ltd, for an aggregate investment amount of Rs 238 crore($46 million).Dalmia Bharat’s cement business is separately backed byprivate equity giant KKR.The investment for acquiring Calcom Cementstake would be rolled over in multiple tranches, through a combinationof fresh issue of shares and acquisition of existing shares of the privatelyheld firm. Calcom is a manufacturer of OPC and PPC cement and iscurrently expanding its consolidated cement manufacturing capacity to2.1 million tons per annum.The deal values Calcom Cement at Rs 576crore. This translates into a valuation of around Rs 2,743 per tonne(given its immediate project capacity) or Rs 3,388 a tonne (based on itsinitial capacity of 1.7 million tonne). This is about half of the valuationcommanded by the country’s largest cement maker Ultratech and that ofanother giant ACC, but around the same valuation level of a few othersmall and mid-sized cements firms. 5
  6. 6. IEP Raising $500M Fund, Gets Initial Commitment For AQuarterIndia Equity Partners (IEP) is raising its second private equity fund witha target of $500 million and has already received commitments foraround $130 million. In the process, it joins a list of India-focused PEfirms, either raising their maiden funds or follow-on funds with a biggercorpus. At present, IEP is investing out of its first fund worth $350million. It has also been chasing investments in companies engaged insectors like consumer products, food services, healthcare, education andconsumer finance, as well as logistics and utility services sectors.RCOM Eyes $1.5B Singapore IPO for Undersea Cable UnitTelecoms company Reliance Communications is looking to raise up to$1.5 billion through an initial public offering in Singapore of itsundersea cable unit, two sources with direct knowledge of the mattersaid on Wednesday. The debt-laden mobile phone operator, controlledby billionaire Anil Ambani, plans to sell 75 per cent of the wholly-ownedunit, one source said. The other source said a listing could happenbetween July and September. Deutsche Bank (DBKGn.DE) is arrangingthe planned share sale.Red Fort Capital Raises $500M For Second Realty FundRed Fort Capital, a private equity real estate fund, has raised $500million from overseas investors for its second real estate fund focusedon residential properties. Red Fort India Real Estate Fund I raised $375million in 2007.According to its latest filing with the US regulator earlierthis month, Red Fort India Real Estate Fund II had raised $368.5 millionon a target of $500 million. The amount had been raised from 22investors, with minimum commitment amount being $10 million. ParkHill Real Estate Group LLC, which is an affiliate of The Blackstone Group,is listed as a placement agent for the fund. Park Hill Real Estate alsoadvised Red Fort on its first fund 6
  7. 7. R-Cap sells 26% stake in MF arm to Nippon LifeReliance Capital Asset Management Ltd, the mutual fund arm of the AnilAmbani-controlled Reliance Group, on Thursday announced a 26%stake sale to Japan’s Nippon Life Insurance Co. for Rs.1,450 crore.Thetransaction will mark the entry of Nippon Life into India’s Rs.6.82trillion asset management industry.The deal values India’s secondlargest fund house at Rs.5,600 crore, or about 6% of its overall assetsunder management (AUM). It’s one of the highest valuations for an assetmanager in India in recent times, and the deal comes at a time when theindustry is grappling with sluggish sales amid slowing economic growthand market volatility.Vodafone wins Rs 11000cr tax case in SCThe case centred on Vodafones $11bn acquisition of the Indian assets ofChinas Hutchison Telecommunications in 2007.Vodafone said it did notowe tax on the deal, as the assets were held by a firm based in theCayman Islands. In May 2007, Vodafones Dutch subsidiary acquired a67% stake in CGP Investments Ltd, a Cayman Islands registeredcompany which held the Indian telecom assets of Hutchison. It waspresented with a tax demand of 112 billion rupees, currently worth$2.2bn. The Indian government subsequently sought penalties of up to100% of the original bill."The court has concluded that Vodafone had noliability to account for withholding tax on its acquisition of interests inHutchison Essar Limited (now Vodafone India Limited) in 2007," thecompany said in a statement. 7
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