MF and VCF Updates - August 2009

India Mutual Fund And Venture Capital Fund Updates

In this issue:

Regulatory Updates

Brokerages to revise costs for

MFs

New direct tax code to make fund-

raising easier for VCs

India widens foreign VC funds'

investment options

Bank-sponsored PE, VC funds

face capital adequacy norms

Management Fees – Are These Tax

Deductible?

Parity of Exit load among all

classes of unit holders

Lower Filing Fees for Mutual

Funds - SEBI

Press News

Cinema VC funds unfazed by flops

Subbu Subramaniam Leaves

Baring Over Differences With

Bhasin

Harbinger Withdraws From Asarco

Race; May Back Sterlite

Red Fort Capital to pick up 50%

stake in Noida project

Mutual Funds And Venture Capital Funds

Updates

Issue No 8

August 2009

Regulatory Updates

Brokerages to revise costs for MFs

Distributors of mutual funds are planning to revise their transaction cost structure to

attract investors as the charge for buying units in a mutual fund goes from tomorrow,

something they believe will increase sales.

Distributors are now waiting to see whether asset management companies

(AMCs) announce distribution commission for various schemes, and they could charge

advisory commission from customers on that basis

Securities and Exchange Board of India (SEBI), on June 18, asked mutual funds not to

deduct marketing and distribution charges from the investments made by subscribers.

More

New direct tax code to make fund-raising easier for VCs

With the government allowing tax pass-through to financial intermediaries, including

domestic venture capitalists (VCs), in the direct tax code unveiled on August 12, VCs

are optimistic about fund raising.

A pass-through in taxation means that the business entity need not pay tax. Instead, all

taxable income is passed through to its owners or members.

More

DHFL Venture Capital Forms JV

With Redwood Group

From $30M In 2006 To $300M In

2008; Cleantech Investments

Shoot Up

Mahindras float in-house PE firm

to fund new projects

Tata Capital to launch private

equity fund

Mphasis Acquires AIG Systems

Solutions

TA Associates Raises $4 Billion

Fund

FIPB Clears Warburg Pincus

Investment in Synergy Media

Sequoia Capital India Picks Up

6.8% stake in eClerx

Nalanda Capital Picks Up

Additional 2.2% Stake in Berger

Paints

SUUTI eyes Rs 7K cr from sale of

17% in Axis Bank

IndiaCo Ventures To Invest $2-5

Mn Each In Neo Corp, Grow VC

Compensation Hikes Muted For PE

Industry This Year

Aavishkaar Picks Up 21% Stake In

Saraplast

Vistaar Religare Fund Invests In

Hollywood Production 'The

Jonses'

Warburg Pincus To Exit Dainik

Bhaskar

India widens foreign VC funds' investment options

Indian regulators have opened the doors to foreign venture capital funds (FVCFs)

beyond the select investment options they were being offered in recent times.

The decision, reflected in some of the communications between the Reserve Bank India

and custodian banks of VC funds, could not only make life easier for foreign funds and

widen the scope for their risk capital, but also boost foreign direct investment (FDI) in

the country.

In the past one year, FVCFs, which were allowed to come in, were specifically told to

stick to activities such as infrastructure, bio-technology, nano-technology, biofuel, IT-

related activities for hardware and software development and a few other areas outlined

by the government in the list of 10 sectors identified for tax benefits to VCs.

More

Bank-sponsored PE, VC funds face capital adequacy norms

In a move that could affect private equity (PE) and venture capital (VC) funds being set

up by banks, the Reserve Bank of India (RBI) today said it was planning to lay down a

risk management and capital adequacy framework for bank-sponsored private pools of

capital.

The move, a part of the new set of prudential norms being discussed by financial sector

regulators across the globe in the wake of the credit crisis, was being discussed in view

of the reputational risk arising from undertaking such activities, RBI said in its annual

report for 2008-09.

More

Management Fees – Are These Tax Deductible?

The Indian Income tax laws exempt income of a SEBI registered Domestic Venture

Capital Fund (DVCF), from its investments and such income is taxable in the hands of

investors, thereby granting ―tax pass through‖ status to DVCF. As per the amended

provisions in force, this exemption is granted if DVCF makes investments in VC

undertaking engaged in 9 specific sectors (eligible VCU). If DVCF makes investment in

Morpheus Venture Partners To

Raise Rs 2 Cr Seed Fund

BanyanTree Picks Up 10% Stake in

GEI Industries

Frontline Strategy Picks Up

Secondary Stake in Tejas

Networks

PE-Backed HomeShop18 To Raise

Funds In Next 12 Months

Religare MF launches debt fund

Six Private Equity Funds Show

Interest in MCX-SX Stake Sale

Cybernet-SlashSupport Appoints

Sreenidhi Sharma As New CEO

Hedge Fund Brevan Howard Sets

Up Mauritius Units To Invest in

India

RBS Hires Anil Gudibande From

AIG Private Equity

Value of deals falls 66% in H1:

Grant Thornton

Mutual fund AUM crosses Rs 7

lakh cr in July

Inflows into gold ETFs rise 32%

year to date

Indian mutual fund industry to

revisit fund

Mutual Fund industry trend

Shinsei AMC launches Industry

Leaders Fund

SBI set to take over UTI AMC,

create biggest fund house

non eligible VCU, it would not be able to avail such benefits.

The intention of the legislature was to tax the income at the level of DVCF instead of

taxing at the level of the individual investor. Thereby it was intended that only the point

of taxation should change and not the tax position.

Taxability of income, other than from investments in eligible VCU is governed by the

structure of the DVCF entity. Since most DVCF are structured as trust, the taxability is

based on the provision of trust taxation.

More

Parity of Exit load among all classes of unit holders

SEBI circular no. SEBI/IMD/CIR No. 6/172445/2009 dated August 7, 2009 on Exit Load

– Parity among all classes of unit holders.

It is observed that the mutual funds are making distinction between the unitholders by

charging differential exit loads based on the amount of subscription. In order to have

parity among all classes of unit holders, it has now been decided that no distinction

among unit holders should be made based on the amount of subscription while

charging exit loads. Further it states that ―any imposition or enhancement in the load

shall be applicable on prospective investments only‖ and parity among all classes of

unit holders in terms of charging exit load shall be made applicable at the portfolio level

More

Lower Filing Fees for Mutual Funds - SEBI

Securities Exchange Board of India (SEBI) clarified that the revised filing fee for offer

documents of mutual funds will be applicable to those schemes registered with the

market regulator on or after 1 July.

The filing fee for offer documents of mutual funds has been reduced from 0.005% to

0.002% of the amount raised in the new fund offer, subject to a minimum of Rs1 lakh

and a maximum of Rs50 lakh.

More

MF assets set to grow by 29%

International News

Singapore PE Firm Orient Global

Exits India Infoline At A Loss

Blackstone Beats Estimates, Has

$29 Bln To Invest

LGT Capital Announces First

Close Of Secondaries PE Fund At

$268M

John Harley Appointed Ernst &

Young Private Equity Head

Temasek's New Charter Looks To

Downplay Govt Links

Manulife buys AIC's mutual funds

Press News


The initial response to films funded by cinema-focused venture funds might not have

been overwhelming, but that is not stopping them from promising high returns.

Despite the bombing of films like Victory and The Stoneman Murders at the box-office,

cinema venture capital funds are promising up to 35 per cent return as against 18-20

per cent internal rate of return being offered by private equity and other VC funds.

At present, Vistaar Religare Film Fund and Cinema Capital Venture Fund are the two

cinema VCs registered with the capital markets regulator, Securities and Exchange

Board of India (Sebi).

More

Subbu Subramaniam Leaves Baring Over Differences With Bhasin

N. ―Subbu‖ Subramaniam (right), a partner with Baring Private Equity Partners India,

has quit the Delhi-based private equity fund on a bitter note after 12 years of

association with the firm. Subramaniam has quit over "professional differences" with the

firm's managing partner Rahul Bhasin (left), sources told VCCircle.

When contacted, Bhasin confirmed the development saying Subramaniam is no longer

with Baring. However, the partnership matters are yet to be settled as both the partners

have appointed arbitrators to decide on the issue. A PE firm usually gets about 2% of

the funds under management and 20% of the profits from investment as carry.

More

Harbinger Withdraws From Asarco Race; May Back Sterlite

Harbinger Capital, a hedge fund and one of US copper firm Asarco‘s largest

bondholders, has decided to withdraw from the race to take-over Asarco. This leaves

the two key contenders India‘s Sterlite and Grupo Mexico in the race to gain control of

Asarco, according to this report. Sterlite may get the support of Harbinger Capital

Partners in its take-over plan.

Although the report did not state any reason why Harbinger may back Sterlite, it is well

known that the hedge fund( which has support from Citigroup), earlier extended its

support to Asarco in the fight against Grupo Mexico and the environmental suits.

Citigroup and Harbinger together comprise Asarco‘s largest bondholders and their

support is crucial for Sterlite. It had also said that it would oppose Grupo Mexico‘s bid.

More

Red Fort Capital to pick up 50% stake in Noida project

Private equity fund Red Fort Capital will pick up around 50 per cent stake in a Noida

residential project, a source familiar with the development said.

The project —Lotus Boulevard, is spread over 40 acres in Sector 100 of Noida and is

being developed by the 3C Company.

3C Company has already delivered over 12 million square feet of commercial projects,

which includes Wipro‘s Gurgaon campus and Patni Computer Systems Noida office.

―Red Fort Capital will acquire up to 50 per cent stake in the project. The total project

cost is in the range of Rs 1500-1600 crore,‖ the source said.

More

DHFL Venture Capital Forms JV With Redwood Group

DHFL Venture Capital Pvt. Ltd has tied up with Redwood Group to raise a private equity

fund focused on logistics and warehousing. DHFL Venture Capital, which is registered

with SEBI, is the subsidiary of India‘s third largest home finance company Dewan

Housing Finance Corp. Ltd.

The two firms have entered into a 50:50 JV which will raise funds from both domestic

and overseas markets. While the fund will raise $150-200 million from the international

markets, it will also raise another Rs 150-Rs 200 crore from the domestic markets,

reports Business Standard.

More

http://www.business-standard.com/india/news/dhfl-venture-capital-in-jvredwood-for-logistics/366236/

From $30M In 2006 To $300M In 2008; Cleantech Investments Shoot Up

Private equity and Venture capital investments increased by nearly ten times from

$30M in 2006 to $300M by 2008, according to a recent report by E&Y. PE/ VC players

invested $527 mn in the sector –which also accounts for 24% of the total transaction

value in India for the period Jan 2005 and 21 July 2009.

Key PE/VC transactions include Moser Baer (investor CDC Group, Credit Suisse, IDFC,

Morgan Stanley and Nomura International); SE Forge (investor IDFC); Vestas RRB

India (investor Merrill Lynch); Orient Green Power Company (investor Olympus

Capital); Cobol Technologies‘ (investor Pangea Capital).

It also saw significant transaction activity with deals worth $2,155 million announced

between January 2005 and July 2009. The average deal size (based on deals with

announced value) stood at $69.5 million during the same period. Suzlon‘s acquisition of

REPower, worth $1,327 million accounts for 61.6% of transaction activity in value.

Another significant transaction was Gammon India‘s acquisition of a 50% stake in

Sofinter for $101 million.

More

Mahindras float in-house PE firm to fund new projects

The $6.3-billion Mahindra group has set up an in-house private (PE) equity division that

will serve as a launch pad for new projects within the group.

―What we have created is a new division within the group called Mahindra Partners.

Loosely, it‘s a kind of private equity within the group,‖ said Anand Mahindra,

vicechairman and managing director of Mahindra & Mahindra. The PE vertical is a ‗fairly

significant change‘ in the architecture of the group, Mr Mahindra added. The PE vertical

will be the group‘s growth driver of the future, he said.

More

Tata Capital to launch private equity fund

Tata Capital, the financial services arm of the Tata group, is likely to come out with a

private equity fund shortly. This was announced by Tata Capital Managing Director,

Praveen P Kadle, here on Tuesday.

Kadle declined to say what could be the size of the private equity fund, but according to

early indications, the fund-size will initially be of USD 350-400 million. Tata capital has

an Rs 8,500 crore alliance with the Japanese Mizuho Financial Group.

More

Mphasis Acquires AIG Systems Solutions

Baring Private Equity backed Mphasis Limited, a Bangalore based IT and BPO

company, is acquiring AIG Systems Solutions Pvt Ltd (AIGSS), an India captive back

office arm of the insurance major, American International Group (AIG).

With this acquisition, Mphasis strengthens its portfolio in financial services and

insurance (FSI) verticals, said a press statement. It will allow Mphasis to offer industry

specific solutions to its customers. The FSI segment contributes around 39% to

Mphasis‘ total revenue. With the acquisition, around 800 employees of AIGSS will join

Mphasis, which currently has 33,000 employees worldwide.

More

TA Associates Raises $4 Billion Fund

TA Associates, a growth oriented private equity firm, has closed its new $4 billion

private equity fund, TA XI, L.P. The fund is the successor to TA X, a $3.5 billion fund

which was closed in March 2006. TA Associates has an office in Mumbai, besides

offices in Menlo Park, London, and Boston.

TA Associates has been investing in India, and picked up a minority stake in Idea

Cellular along with ChrysCapital in late 2006. TA Associate's managing director Ajit

Nedungadi, who is based out of London, looks after investments in India and other

emerging markets, besides Europe. The private equity firm also has Naveen Wadhera,

a director based out of Mumbai, who was previously with Goldman Sachs' Asian

Special Situations group.

More

FIPB Clears Warburg Pincus Investment in Synergy Media

Warburg Pincus (through investment arm Cliffrose) is picking 3.2% stake in Synergy

Media Entertainment, the radio broadcasting arm of media group Dainik Bhaskar for Rs

1.52 crore. The private equity major has received approval from the Foreign Investment

Promotion Board (FIPB), the nodal body for clearing foreign investment into India, for

the deal. This deal values the radio broadcaster at Rs 47.5 crore, marginally short of

$10 million.

Synergy Media operates under the brand My FM. It started radio broadcast in Jaipur in

May 2006 and has now expanded presence to 17 stations including Ahmedabad,

Ajmer, Amritsar, Bilaspur, Bhopal, Chandigarh, Gwalior, Indore, Jabalpur, Jaipur,

Jalandhar, Jodhpur, Kota, Nagpur, Raipur, Surat and Udaipur.

More

Sequoia Capital India Picks Up 6.8% stake in eClerx

Sequoia Capital India continues to cherry pick stocks from the open markets. The

venture and growth capital investor has picked up a 6.8% stake in eClerx Services Ltd

from open markets for around Rs 43 crore. eClerx was one of the first Indian knowledge

process outsourcing firms to go for an IPO and was listed in 2007. The company

provides data analytics and data process management services to the retail,

manufacturing and financial services industries.

The stake has been picked up from Burwood Ventures, an investment firm based in

Virgin Islands which invested in 2005. Burwood held a 17.49% stake in eClerx as of

June-end, 2009. The stake was picked at a share price of Rs 330, near its 52-week

high of Rs 340. eClerx reported FY09 revenues of Rs 193.2 crore as against Rs 128.3

crore in the corresponding period last year. The profits after tax for the year stood at Rs

61.8 crore.

More

Nalanda Capital Picks Up Additional 2.2% Stake in Berger Paints

Singapore-based Nalanda India Fund is picking an additional 2.2% stake in Berger

Paints to hike its existing holding to around 5.8%. Although the price at which Nalanda

would subscribe to the fresh shares is not clear, at current market price it would have to

shell out around Rs 34.5 crore.

As of June 30, Nalanda held 3.7% in Berger Paints. According to a disclosure made to

the stock exchange Berger Paints will issue up to 7.2 million equity shares of a face

value of Rs 2 each at a price not lower than the minimum price specified as per Sebi

guidelines for preferential issue.

The relevant date for determining the issue price shall be August 17, 2009. cKolkata-

based Berger Paints is a Rs 1,500 crore firm making it the second largest paint

company in the country by revenues behind Asian Paints.

More

SUUTI eyes Rs 7K cr from sale of 17% in Axis Bank

State-owned Special Undertaking of UTI (SUUTI) is looking to offload part of its stake in

Axis Bank, country‘s third-largest private sector lender, within next four months.

SUUTI holds a 27.02% stake in the bank and is looking to divest around 17%. It

expects to realise Rs 6,000-7,000 crore from the sale, a 13-30% premium over the Rs

870 closing price of Axis Bank share on the National Stock Exchange

―With the market situation improving, SUUTI has restarted talks with investment

bankers, including JP Morgan and Citi Group, and is expecting to offload about 17%

stake in coming months,‖ said a senior finance ministry official, who did not wish to be

identified.

More

IndiaCo Ventures To Invest $2-5 Mn Each In Neo Corp, Grow VC

IndiaCo Ventures Ltd, a Pune based private equity firm, has received directors‘ nod to

invest $2-5 million each in Madhya Pradesh based manufacturing company Neo Corp

International Ltd and UK based venture capital fund Grow VC Advisors Ltd. The

proposed investment will be made in the next 18 months time, Rahul Patwardhan, Vice-

chairman and MD, IndiaCo Ventures Ltd, told VCCircle.

Patwardhan informed that IndiaCo is not committing to put in $2-5 million to each of the

firms, rather it will look at the opportunities and invest on the basis of the capital

requirements for the companies.

Neo Corp International provides applications for textiles, agriculture and infrastructure

and construction industry. IndiaCo's investment in Neo Corp is part of its regular

investment activity. Investment in Grow VC will help IndiaCo to leverage opportunities

outside India, while at the same time it will help bring in technologies for the portfolio

companies, said Patwardhan.

More

Compensation Hikes Muted For PE Industry This Year

Salaries of top Indian private equity professionals -- who take home anywhere between

Rs 25 lakh to Rs 4 crore a year -- have taken a knock this year as a result of a decline

in deal flow and a lack of exits in 2008-09. And, it appears that the compensation hikes

will continue to be muted in 2010 with investors pushing for more returns on their buck.

―The compensation for the VC/ PE industry has saturated,‖ said Sunit Mehra, Managing

Partner & Founder, Hunt Partners. Shalini Sethi, Chairperson & MD, Emploi Globale, a

Bangalore-based recruitment firm focused on the private equity and investment banking

industry, reflected the same sentiment: ―Existing funds have rationalised annual

bonuses and raises (many to nil). This has been done across funds.‖

According to a 2009 study of private equity compensation conducted by Hunt Partners,

a recruitment firm focused on private equity and venture capital, there has been a fall in

the compensation of PE professionals especially at the vice president and director level.

They source, negotiate, and close transactions, monitor them and even sit on boards of

portfolio companies.

More

Aavishkaar Picks Up 21% Stake In Saraplast

Aavishkaar India Micro Venture Capital Fund (Aavishkaar), a Mumbai based venture

fund focused on rural and semi-urban India, has picked up 21% stake in Pune based

Saraplast Pvt Ltd. Saraplast is a sanitation solutions provider, which operates under the

brand name ‗Shramik‘ or ‗3S‘. Saraplast will deploy the fund in expanding its presence

across India and enhance operations in waste management services.

Vineet Rai, founder and CEO of Aavishkaar stated that it has invested in Saraplast

considering its necessity for social and environmental development. ―Coupled with

strong business logic, a highly scalable model and a dynamic management team, we

are building another early stage partnership with Saraplast that has far reaching

positive consequences for the nation,‖ said Rai.

More

Vistaar Religare Fund Invests In Hollywood Production 'The Jonses'

Vistaar Religare Film Fund (VRFF) has made an investment in a Hollywood movie

starring Demi Moore and David Duchovny titled 'The Joneses'. The film premieres at

Toronto International Film Festival 2009 (TIFF 2009), which is scheduled to be held on

September 10-19, 2009. The Joneses is a comic drama, which is produced by Douglas

Mankoff‘s Echo Lake Productions that earlier funded Deepa Mehta‘s ‗Water'. The film is

directed by Derrick Borte.

Sheetal Talwar, MD, VRFF stated that they are committed to funding good content and

talent and will continue to fund Indian films, besides funding mainstream Hollywood

projects. This is the first investment by a SEBI-registered fund in a Hollywood project.

VRFF has earlier invested in a South African film called 'Finding Lenny'.

This development comes after Anil Ambani led Reliance Big Entertainment recently

signed a deal to produce movies with renowned Hollywood director Steven Spielberg's

DreamWork's Studios.

More

Warburg Pincus To Exit Dainik Bhaskar

Warburg Pincus is completely exiting its three year old investment in Dainik Bhaskar

group flagship DB Corp. The PE firm will sell out its 7% stake in the company as a part

of the initial public offer of DB Corp. DB Corp is coming with an issue of 24.78 million

shares of which 12 million shares are on offer for sale from Cliffrose, an investment arm

of Warburg.

According to VCCircle estimates the cost of investment for Warburg is around Rs

125/share after taking into account changes in capital structure including bonus issue.

Incidentally, Warburg was earlier looking to sell a part of the shares it held. The original

draft prospectus filed in late 2007(just before the market crash) had said Warburg is

looking to sell a part of the shares to a ‗third party‘ prior to the IPO.

More

Morpheus Venture Partners To Raise Rs 2 Cr Seed Fund

Bangalore-based startup incubator Morpheus Venture Partners (MVP) is considering

raising Rs 1-2 crore ($200k-500k) venture capital fund. The company is planning to

target high net worth individuals (HNI) to raise the proposed amount.

Speaking to VCCircle, Sameer Guglani, co-founder of MVP, said that ―work on raising

the fund is expected to begin in next three months, wherein we would be targeting an

investment of Rs 25-30 lakhs ($50-60,000) from each investor.‖ Guglani had earlier co-

founded Madhouse.in, an online DVD rental company, which was funded by Mumbai

Angels. It was later sold to Seventymm.com.

MVP will invest Rs 5 lakh ($10,000) in each company under its portfolio, once the

targeted fund is raised, added Guglani.

More

BanyanTree Picks Up 10% Stake in GEI Industries

BanyanTree Growth Capital LLC, a Mauritius based private equity fund, has picked up

nearly a 10% stake in Bhopal based GEI Industrial Systems. GEI is engaged in the

manufacturing of air cooled heat exchangers, air cooled steam condensers, and

associated systems for oil, gas and power sectors.

The private equity fund is picking up the stake for around Rs 11 crore. BanyanTree will

have a board representation. Mumbai based Singhi Advisors were the sole financial

advisor to GEI Industrial Systems in the deal.

GEI's FY09 revenues stood at Rs 213 crore, as compared to Rs 186 crore a year

earlier. The net profit for FY09 stood at Rs 10.3 crore, as compared to Rs 9.2 crore in

FY08. The stake has been picked at a price of Rs 75 per share. GEI stock, which

closed at Rs 63.85 yesterday, was up by more 10% touching a high of Rs 71.5 per

share before settling down at around Rs 68.

More

Frontline Strategy Picks Up Secondary Stake in Tejas Networks

Private equity firm Frontline Strategy Ltd has made an investment in Tejas Networks

Limited, an optical networking equipment manufacturer in India. The investment comes

out of India Industrial Growth Fund (IIGF), a $200 million fund launched in 2007

focusing on growth sectors and small and medium enterprises (SMEs). The fund's

other investments are Krishna Saa Fabs Pvt Ltd (a galvanizing/structural engineering

firm) and Shriram SEPL Composites Pvt Ltd (a manufacturer of glass reinforced

polyester composite pipes).

Frontline has picked up the stake through a secondary transaction. In the issued

release the firm did not mention the deal size or from which shareholder of Tejas the

stake was bought. Tejas has raised private equity funding from investors like Battery

Ventures, Cascade Capital Management (investment arm Gururaj Deshpande, co-

founder and chairman of Sycamore Networks), Mayfield Fund, Intel Capital, Goldman

Sachs and Sandstone Private Investments.

More

PE-Backed HomeShop18 To Raise Funds In Next 12 Months

Private equity firm SAIF Partners-backed home shopping format HomeShop18, part of

media group Network18, is on a fund-raising course. HomeShop18 has initiated talks

with prospective partners and is looking at raising funds over the next 12-month

horizon, a top official told VCCircle.

―We are in discussion with some prospective financial and strategic partners. The

process is in a premature stage,‖ says HomeShop18 CEO Sundeep

Malhotra. HomeShop18 has outlined three priority areas for growth: To be visible in

every television household; to invest in customer experience; and, to reward loyal

customers.

So far, Network18 and SAIF Partners have invested nearly $30 million in the venture, in

which they hold 65% and 35% interest respectively. HomeShop18 raised $10 million

from SAIF Partners in the first round and, in July 2008, it raised another $21 million

(SAIF Partners contributed $16 million and the balance came from Capital18).

More


Religare Mutual Fund has launched a fund scheme that would invest primarily in debt

securities and money market instruments.

Religare Credit Opportunities Fund, an open ended income scheme, aims to beat its

benchmark by investing in instruments that offer superior yield, and would invest in

short-term corporate bonds, Religare Enterprises said in a statement to the Bombay

Stock Exchange.

Religare MF is a part of Religare Enterprises, which is a diversified financial services

group. The scheme, which closes on August 25, offers retail and institutional plans.

More

Six Private Equity Funds Show Interest in MCX-SX Stake Sale

India‘s newest stock exchange MCX Stock Exchange Ltd (MCX-SX) has attracted

interest from around six private equity funds for a 5% stake. The firms include General

Atlantic, Fidelity International Ltd, hedge fund TPG-Axon, CME Group, Abu Dhabi

Investment Authority (ADIA) and a group company of Singapore‘s sovereign wealth

fund Temasek, reports ET. This comes after London Stock Exchange (LSE) and New

York Stock Exchange Euronext (NYSE) showed interest to pick up a 5% stake each in

MCX-SX.

The promoters of the stock exchange, Financial Technologies (FT) and commodity

exchange MCX, have already divested 30% stake to domestic public-sector and private

banks and institutions, while the remaining 70% stake is with them. The promoters

intend to bring down their respective stakes to 15% each, in line with regulations that

limit promoter ownership in a stock exchange to 15%.

More

Cybernet-SlashSupport Appoints Sreenidhi Sharma As New CEO

Private equity backed technology operations management firm Cybernet-SlashSupport

(CSS) has appointed Sreenidhi Sharma as the new CEO. CSS has four lines of

business – enterprise support services, customer support services, remote

infrastructure management and application life cycle management. Sanjiva Singh, who

was the interim-CEO of the firm, has now taken the postion of President in the

company.

Prior to his joining in CSS, Sharma, who is popular in the industry as Nick Sharma, was

heading the infrastructure management services (IMS) business at Satyam.

In July 2009, VCCircle reported that the firm has $30 million cash on its balance sheet

and is looking to acquire a company which could augment one of its four businesslines.

CSS mentioned that revenue size of the target firm could be up to $50 million.

More

Hedge Fund Brevan Howard Sets Up Mauritius Units To Invest in India

Europe's largest hedge-fund manager Brevan Howard Asset Management LLP has set

up two Mauritius-based investment entities to route funds from its flagship $15 billion

Brevan Howard Master Fund to invest in India. The London-based fund house, which

manages $24 billion in assets world-wide, disclosed this in a stock-exchange filing last

week.

Given its status as a tax haven, Mauritius is the most common way to route funds into

India by both financial and strategic foreign investors. Over time it has become the

biggest source of foreign direct investment into the country even as there are no big

Mauritius located firm to have operations in India.

It is not clear if Brevan Howard already has an exposure in India market. In in

disclosure to the London Stock Exchange, it announced the creation of two trading

subsidiaries BHIOF Investments Limited and BHMF Securities Limited.

More

RBS Hires Anil Gudibande From AIG Private Equity

Anil Gudibande has been appointed to head the corporate financing and risk solutions

(CFRS) division of Royal Bank of Scotland (RBS) in India, reports FinanceAsia.

Gudibande joined AIG Investments in mid-2008 as part of its private equity team.

Before AIG, Gudibande was part of Citi India.

The main areas of responsibility for Guibande would be to develop the bank's CFRS

business and to compliment and enhance some of its key relationships in the global

banking and markets business. Guibande will be placed directly under the RBS country

head for global banking and markets in India, Madan Menon and Sanjeev Kumar, who

heads the CFRS division in the Asia-Pacific region.

More

Value of deals falls 66% in H1: Grant Thornton

The total value of deals, including mergers and acquisitions (M&As) and private equity

(PE), in the first half of 2009 dropped 66 per cent to $7.81 billion from $23.02 billion in

the first half of last year.

While Indian corporates witnessed fewer M&A transactions and PE investments, there

were signs of recovery in the economy in the second quarter of the current year, said a

study by Grant Thornton.

The total number of M&A deals announced in the first six months of 2009 stood at 123,

with a total value of $4.93 billion.

More

Mutual fund AUM crosses Rs 7 lakh cr in July

The total value of deals, including mergers and acquisitions (M&As) and private equity

(PE), in the first half of 2009 dropped 66 per cent to $7.81 billion from $23.02 billion in

the first half of last year.

While Indian corporates witnessed fewer M&A transactions and PE investments, there

were signs of recovery in the economy in the second quarter of the current year, said a

study by Grant Thornton.

The total number of M&A deals announced in the first six months of 2009 stood at 123,

with a total value of $4.93 billion.

More

Inflows into gold ETFs rise 32% year to date

With exchange-traded funds (ETFs) fast gaining popularity among investors, including

those from overseas, Indian ETFs which track gold are witnessing substantial increase

in inflows.

Despite the fact that prices of the yellow metal are highly volatile, inflows into gold ETFs

have jumped 32 per cent year to date compared with the same period last year.

According to figures available with the Association of Mutual Funds in India (Amfi), gold

ETFs have seen net inflows of Rs 176 crore during the period under review, as against

Rs 133 crore in the corresponding period last year.

Currently, there are six gold ETFs in the market — one each from Benchmark, UTI,

Kotak, Quantum, SBI and Reliance Mutual Fund.

More

Indian mutual fund industry to revisit fund

India has 36 asset management companies (AMCs) and at least some of them are

planning to start their own distribution business instead of selling funds through third-

party distributors

Mumbai: The Rs7.2 trillion Indian mutual fund industry is revisiting its business model to

be in sync with the new norms put in place by the capital market regulator, the

Securities and Exchange Board of India, or Sebi.

India has 36 asset management companies (AMCs) and at least some of them are

planning to start their own distribution business instead of selling funds through third-

party distributors. Among other things, they plan to cut distributors‘ commission by 25-

30 basis points (bps) and shift their focus from frequent churning of funds to managing

money for the longer term.

More

MUTUAL FUND INDUSTRY TRENDS

Scheme Mergers by various Fund Houses

In the recent past, UTI, ING and JM Mutual Fund have merged few of their schemes

with small AUM into larger schemes. Following the trend, Kotak, Principal and Fidelity

Mutual Fund merged some of their small schemes into their large schemes in the month

of July.

Such mergers may result in lesser overhead cost and better management of schemes.

They may also result in reduction of number of duplicate funds within the same asset

management company

Kotak Technology fund, Kotak MNC and Kotak Global India being merged with Kotak

Opportunities; while Principal Junior Cap was merged with Principal Emerging Blue chip

fund. These are the examples of few recent mergers in the industry

More

Shinsei AMC launches Industry Leaders Fund

(India) launched its maiden equity scheme christened as Shinsei Industry Leaders

Fund. The new fund offer for the scheme opened for subscription on July 27 and will

close on August 25

Shinsei Industry Leaders Fund is an open ended equity scheme which will invest in

equity and equity related securities of companies identified as ―Industry Leaders‖.

An Industry Leader is a company which in the opinion of the fund manager, has the

following attributes:

More

SBI set to take over UTI AMC, create biggest fund house

The State Bank of India (SBI) is close to taking control of UTI Asset Management

Company (AMC). SBI outbid the other three sponsors. Earlier this year, the government

had decided to put the AMC on the block, but restricted the bid to the four original

sponsors - SBI, Life Insurance Corporation of India (LIC), Punjab National Bank (PNB)

and Bank of Baroda (BoB).

SBI is now poised to gain control of the AMC, with the government set to approve the

deal, according to industry officials privy to the development. The realisation for the deal

is reckoned to be over Rs 1,000-1,500 crore. The proposed transaction will result in the

emergence of the biggest fund house in the country.

More


The country‘s burgeoning mutual fund industry is expected to see its assets growing by

29 per cent annually in the next five years, with high household savings rate and low

retail penetration attracting foreign asset managers, a report has said.

"The total assets under management in the Indian mutual funds industry are estimated

to grow at a compounded annual growth rate (CAGR) of 29 per cent in the next five

years," the report by global consultancy Celent said.

More

International News

Singapore PE Firm Orient Global Exits India Infoline At A Loss

Singapore-based billionaire Richard Chandler led investment firm Orient Global has

exited its one and half year old investment in financial services group India Infoline,

apparently at a loss of more than 50% according to VCCircle estimates. Orient Global

had invested in India Infoline at the peak of the bull market and at the end of March‘08

held over 11% stake through two funds—Orient Global Tamarind Fund Pte and Orient

Global Cinnamon Capital Ltd.

Orient Global had picked stake through a preferential allotment in early 2008 after

striking the deal in November 2007. It had picked 3.7 million shares at a price of Rs

1,500/share costing about Rs 550 crore (after stock split the shares cost works out to

Rs 300/share) and valued the firm at Rs 8,564 crore (~$2.1 billion at that time).

More

Blackstone Beats Estimates, Has $29 Bln To Invest

Private equity firm Blackstone Group LP reported higher quarterly earnings on

Thursday, topping Wall Street expectations, and said it was sitting on its biggest cash

pile ever, with $29 billion to deploy.

The credit crunch and lack of financing have meant private equity firms have struggled

to spend money on leveraged buyouts over the past year, and thus have large amounts

of cash, known as "dry powder," to invest.

More

LGT Capital Announces First Close Of Secondaries PE Fund At $268M

LGT Capital Partners has held a first close its Crown Global Secondaries II plc (CGS II)

at $268 million. The secondaries private equity market provides liquidity to private

equity investors, allowing them to sell positions in private equity funds and liquidate

equity stakes in private companies.

Tycho Sneyers, Partner at LGT Capital Partners, comments: ―With a target of $750

million, we are raising a mid-sized secondary fund which allows us to be very selective

and focus on those transactions where we have proprietary insights. We believe our

disciplined approach of acquiring high quality assets through smaller, less

intermediated transactions will achieve attractive returns while taking limited risks.‖

More

John Harley Appointed Ernst & Young Private Equity Head

In a major reshuffle of the top management, International accounting firm Ernst &

Young, has appointed John Harley, the current chief of Private Equity for Europe,

Middle East, India and Africa to head its private equity division replacing Simon Perry.

―John brings an outstanding depth of knowledge and experience to this role. This will be

invaluable as we continue to develop our private equity capabilities,‖ said Steve

Almassy, Global Vice Chair, Office of the Chairman Accounts and Industry on the

appointment of Harley in a release.

He further added that ―with $1 trillion of committed capital to invest, private equity

continues to have a pivotal role in the global financial system. This is despite the current

lack of liquidity, which is forcing firms to do fewer deals and to turn their attention

toward improving the performance of their portfolios‖.

More

Temasek's New Charter Looks To Downplay Govt Links

Temasek, the largest sovereign wealth fund active in India has changed its global

charter which emphasises its mission "to create and deliver sustainable long-term

returns for our stakeholders". The charter, which was first made public in 2002, stated

earlier that the Singapore government — through Temasek — needed to own and

control firms deemed critical to the city-state‘s security, economic well-being or public

policy objectives. This earlier note has been struck off in the revised charter.

Analysts view this as Temasek downplaying its links to government policy or strategic

interests, as it eyes more overseas assets.

Temasek chairman, S Dhanabalan, said, "Temasek's mission remains to create and

deliver sustainable long-term returns for our stakeholders. We have refined our Charter

to more clearly articulate our focus as a value-oriented investor, and also as a

shareholder focused on achieving sustainable returns by engaging with the boards and

management of our portfolio companies. We will continue to review our Temasek

Charter regularly, and update it as needed in consultation with our shareholder, to

ensure that it remains relevant to our current activities and aspirations as an institution."

More


Manulife Financial Corp said on Wednesday it has bought AIC Ltd's Canadian retail

investment fund business, boosting its mutual fund arm in another big-player takeover

of an independent fund company.

Manulife, which did not disclose the value of the deal, said the move to buy Burlington,

Ontario-based AIC's funds will boost its retail fund assets under management to C$13.7

billion ($12.5 billion) and be "accretive" to earnings, but declined to speculate on how

much or when it expects the purchase to add to profits.

More

Regulatory Updates

Brokerages to revise costs for MFs

UTVi – 01 August 2009

Distributors of mutual funds are planning to revise their transaction cost structure to attract investors as the charge for buying

units in a mutual fund goes from tomorrow, something they believe will increase sales.

Distributors are now waiting to see whether asset management companies(AMCs) announce distribution commission for

various schemes, and they could charge advisory commission from customers on that basis.

Securities and Exchange Board of India (Sebi), on June 18, asked mutual funds not to deduct marketing and distribution

charges from the investments made by subscribers.

Jagannadham Thunuguntla head (equity), SJS Capitals, said: "Days of easy and guaranteed money for distributors are gone.

AMCs need to sacrifice their margins now and pay the distributors or they can mop up advisory commissions from investors

linked to certain schemes. However, the business of big distributors is unlikely to be hurt."

Distributors believe that although their revenue might be affected in the short-term, it would pick up in the medium- to long-

term as more investors come in.

"Volume will pick up in the medium-term as investors would start showing interest gradually. Though there would be some

stress on revenue in the short-term, in the medium-term more buying interest would start pouring in from investors," Anup

Bagchi, executive director, ICICI Direct, said.

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New direct tax code to make fund-raising easier for VCs

Buisness Standard – 14 August 2009

With the government allowing tax pass-through to financial intermediaries, including domestic venture capitalists (VCs), in the

direct tax code unveiled on August 12, VCs are optimistic about fund raising.

A pass-through in taxation means that the business entity need not pay tax. Instead, all taxable income is passed through to its

owners or members.

According to the provisions of the Income Tax Act, VC funds that invest in nine designated sectors — biotechnology,

nanotechnology, IT hardware and software, research and development for new chemical entities, seed research, dairy, poultry,

bio-fuels and large hotel-cum-convention centers — do not pay any tax on the gains realised on such investments. But the

investors or limited partners (LPs) in these funds pay the tax.

―It will create a level-playing field for investors. For instance, people who are investing from Malaysia will get the benefit of tax

pass-through. At present, we have a trust structure where investors cannot exit from a fund in the middle. The direct tax code

has opened various sources of funding and now we can even raise funds from high net-worth individuals,‖ said Axis Private

Equity CEO Alok Gupta.

Foreign VC funds registered with the Securities and Exchange Board of India (Sebi) are exempted from paying any tax in India

as most of them are also registered in Mauritius.

Funds have to pay tax while exiting their investments other than the prescribed sectors. VCs and private equity players said

the tax treatment often discouraged a lot of domestic funds from investing in other sectors even if the underlying opportunity

was good.

―It is unfortunate that most of the funds have registered in Mauritius. It is a welcome step, but a bit-too late since the industry

has been demanding this for long. Since most PEs have raised funds, it will be beneficial for the new ones,‖ said Arun

Natarajan, managing director, Venture Intelligence.

―This will bring us in parity with foreign funds. There will be no difference as we will not pay any tax. We will have to see

whether the funds raised in 2005 and will exit in 2011 will get the benefit of the new tax regime,‖ said Rajesh Singhal,

managing partner, Religare Milestone Private Equity.

At present, there are 132 Sebi-registered domestic VC funds and 129 foreign venture funds.

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India widens foreign VC funds' investment options

Business Standard - 28 August 2009

Indian regulators have opened the doors to foreign venture capital funds (FVCFs) beyond the select investment options they

were being offered in recent times.

The decision, reflected in some of the communications between the Reserve Bank India and custodian banks of VC funds,

could not only make life easier for foreign funds and widen the scope for their risk capital, but also boost foreign direct

investment (FDI) in the country.

In the past one year, FVCFs, which were allowed to come in, were specifically told to stick to activities such as infrastructure,

bio-technology, nano-technology, biofuel, IT-related activities for hardware and software development and a few other areas

outlined by the government in the list of 10 sectors identified for tax benefits to VCs.

Recently, RBI, while giving the green light to some of the FVCFs, has said ―if the FVC investor intends to make any private

equity investments, then it may have to avail the FDI route‖. This means that barring a few sensitive sectors, an FVCF

registered in India is free to invest in almost any business in the country.

For buying into firms which are outside the 10 sectors, the fund will have to either approach the Foreign Investment Promotion

Board for FDIs where the board approval is required, or invest directly in areas where FDI is permitted under the automatic

route.

Responding to the development, Vikram Shroff of the law firm Nishith Desai Associates said, ―The regulator‘s intention seems

to be to allow FVC entities to invest beyond what is permissible under the Sebi FVC regulations, albeit under the FDI route.‖

Shroff, who advises several FVCFs, said, ―Upon RBI clarifying, offshore venture capital and private equity funds may no longer

need to set up separate entities for pursuing FDI in India.‖

According to private equity circles, FVCFs have interest in businesses like BPOs, telecom, media and entertainment, among

other segments. RBI‘s latest stand, however, does not pave the way for FVCF investment in the real estate space —

something the central bank forbids.

Fearing a real estate bubble, RBI generally insists on an undertaking from FVCFs that they will not invest in property firms.

This, according to private equity circles, is unlikely to change.

But on a broader plane, this is a welcome move by RBI and will encourage foreign investments, said Punit Shah, executive

director of PricewaterhouseCoopers. ―Of course, FVCs enjoy certain regulatory benefits under Sebi and Fema regulations,

such as exit and entry pricing and lock-in relaxations. These will not be available for its investments under FDI route, but RBI

has certainly made things convenient for the foreign funds.‖

Interestingly, the RBI letter is also a rare instance when a local regulator makes a mention of ‗private equity‘ — a widely-used

generic term for which there is no regulatory definition in India. ―It needs to be understood that venture capital and private

equity are largely similar activities — only the stage differs. Both provide risk capital. While VCs fund early stage, PEs focus on

medium to late stage companies. In several cases, the same fund undertakes both investment activities,‖ said Shroff.

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Bank-sponsored PE, VC funds face capital adequacy norms

V.C.Circle – 28 August 2009

In a move that could affect private equity (PE) and venture capital (VC) funds being set up by banks, the Reserve Bank of

India (RBI) today said it was planning to lay down a risk management and capital adequacy framework for bank-sponsored

private pools of capital.

The move, a part of the new set of prudential norms being discussed by financial sector regulators across the globe in the

wake of the credit crisis, was being discussed in view of the reputational risk arising from undertaking such activities, RBI said

in its annual report for 2008-09.

Laying emphasis on the macro-prudential dimension of the systemic risk assessment, the banking regulator said it was also in

the process of revising the guidelines on stress testing and liquidity risk management and would factor in the new guidance

issued by the Basel Committee on Banking Supervision in March. Indian banks had not shown any strain during the stress test

conducted by RBI.

While banks such as ICICI Bank and Axis Bank are already in the private equity arena, others such as State Bank of India and

Yes Bank are looking to launch such funds. While RBI had initially expressed certain concerns about State Bank of India‘s

entry into the private equity-venture capital space, it asked the country‘s largest banks to initiate certain steps before foraying

into the business. Canara Bank also has a venture capital fund.

If RBI goes ahead with the move, banks would have to factor in the capital they might have to set aside to cover the risk of VC

and PE funds promoted by them.

In recent years, the regulator has laid emphasis on initiatives such as consolidated supervision of banking groups. And with

Indian financial players venturing outside the country, steps are also being taken to strengthen cross-border supervision.

RBI said elements of macro-prudential regulation were visible in India even before the global crisis started. The central bank

had started using counter-cyclical risk weights and provisioning norms, such as those for bank loans to the real estate sector,

to ensure that the risk was contained.

In light of the global financial turmoil, the global initiative would focus on a multi-pronged approach that would focus on

introduction of automatic stabilisers by adopting counter-cyclical capital charge. This would help build a cushion during boom

years to deal with asset-quality issues in a downturn.

Further, RBI said that in the coming days, regulators could focus on elements such as offbalance sheet exposure, risk

concentration and valuation of financial instruments, among others, to strengthen supervision. In addition, they could promote

market discipline through better disclosure and clarity on risks associated with certain instruments.

RBI said regulators could provide capital requirements for reputational and other risk-associated securitisation and activities

undertaken by sponsored or connected conduits. Another element that can be used is stipulating capital treatment for trading

book exposures, besides supplementing the regulatory approach to minimise the incentive for regulatory arbitrage between

banking and trading books.

The regulator said the second element would be adequacy and quality of capital in line with the Basel II risk-based capital

framework and use of simpler measures such as the leverage ratio.

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Management Fees – Are These Tax Deductible?

V.C.Circle - 04 August 2009

The Indian Income tax laws exempt income of a SEBI registered Domestic Venture Capital Fund (DVCF), from its investments

and such income is taxable in the hands of investors, thereby granting ―tax pass through‖ status to DVCF. As per the

amended provisions in force, this exemption is granted if DVCF makes investments in VC undertaking engaged in 9 specific

sectors (eligible VCU). If DVCF makes investment in non eligible VCU, it would not be able to avail such benefits.

The intention of the legislature was to tax the income at the level of DVCF instead of taxing at the level of the individual

investor. Thereby it was intended that only the point of taxation should change and not the tax position.

Taxability of income, other than from investments in eligible VCU is governed by the structure of the DVCF entity. Since most

DVCF are structured as trust, the taxability is based on the provision of trust taxation.

Income-tax Concerns

Are management fees deductible for computing capital gains?

DVCF makes investments in start-up companies and the typical income streams are dividend or capital gains which generally

arise only after a time frame of 3-5 years. During this time, DVCF primarily incur management fees paid to the fund managers.

The issue that arises is whether DVCF would be able to claim deduction for expenses incurred by it from its taxable income.

Generally DVCFs make investment with a long term objective and hence, the income earned on such investments is

investment income as against the business income.

Since dividend income is exempt in the hands of the shareholders, there is no scope of claiming deduction against dividend

income. In fact Rule 8D of Income-tax Rules, 1962 disallows a portion of expenses under section 14A of the Income tax Act,

1961 (‗the Act‘) treating it as incurred for earning exempt income.

DVCF also earns capital gains on sale of its investments. Capital gain computation mechanism under the Act contemplates

deduction of cost of acquisition, cost of improvement and expenses incurred on sale. Hence it would need to be examined

whether management fees could be treated as cost of acquisition, cost of improvement and / or expense on sale of

investments.

Cost of Acquisition

At the time of investments, fund managers spend lot of time in not only identifying the right investment but also, after

preliminary identification, for the evaluation of investment, associated investment risk, documentation, approval, etc. The

investment process generally goes on for 3-6 months and even longer. All expenses incurred in respect of acquisition of asset

are capitalized as cost of acquisition. Even section 43 (1) of the Act recognizes this principle and requires that the tax

assessee capitalizes interest cost incurred before the asset is put to use.

Cost of Improvement

Fund Managers provide not only investment advisory services to the fund but also monitor the investments, assist the

management of portfolio companies to effectively run the VCU, assist in outlining the strategy for the VCU, etc. It therefore

needs to be evaluated whether such assistance can be treated as cost of improvement in the value of investment.

Improvement in the value of the investment is driven primarily by improvement in the business of the VCU, which has

following key attributes: provision of seed capital at the right time;effective management of the company by the entrepreneurs;

and assistance by the fund manager.

Hence, one can argue that the fees paid during the period between investment and sale is for improvement of the business of

the company thereby improving the value of DVCF‘s shares.

Expenses in relation to sale

Even during divestment stage, fund managers spend substantial time and energy in not only negotiating the right price of

investment but in ensuring the exit is in tax efficient and in regulatory compliant manner. They also ensure that no liabilities

attach on the fund or investor in respect of investment sold by the fund. Hence, management fees payable in respect of sale

of investment could be argued as deductible for computing taxable capital gains.

Attribution of management fees

If one argues and claims that management fees as deductible for tax purposes, one would need to identify the amount

attributable to each investment. The determination of amount attributable to investment should be done on a scientific basis.

The fund could either apportion management fees based on

a) time spent by the Fund Manager in respect of each investment (based on time summary details, if any, maintained by the

fund management team) or

b) based on the investment value of different investment, or any other scientific basis.

In case tax authorities do not allow the management fees as deductible expenses then the investors would be required to pay

the capital gains tax on gross amount of capital gains derived from the investments in the non eligible VCUs (ie without

adjustments for management fees).

What if DVCF has both Eligible and Non Eligible investment

In case DVCF has made investment in both eligible and non eligible VCUs the challenge of apportion of expense is even

greater. This issue arises as the income from investment in eligible VCU is taxable on distribution, whereas, the income from

non eligible VCUs is taxable once it is received / accrued to DVCF, irrespective of its distribution.

Top

Parity of Exit load among all classes of unit holders

SEBI - 07 August 2009

(SEBI circular no. SEBI/IMD/CIR No. 6/172445/2009 dated August 7, 2009 on Exit Load)

It is observed that the mutual funds are making distinction between the unitholders by charging differential exit loads based on

the amount of subscription. In order to have parity among all classes of unit holders, it has now been decided that no

distinction among unit holders should be made based on the amount of subscription while charging exit loads. Further it states

that ―any imposition or enhancement in the load shall be applicable on prospective investments only‖ and parity among a ll

classes of unit holders in terms of charging exit load shall be made applicable at the portfolio level

Top

Lower Filing Fees for Mutual Funds - SEBI

www.iTrust.in - 09 August 2009

Securities Exchange Board of India (SEBI) clarified that the revised filing fee for offer documents of mutual funds will be

applicable to those schemes registered with the market regulator on or after 1 July.

The filing fee for offer documents of mutual funds has been reduced from 0.005% to 0.002% of the amount raised in the new

fund offer, subject to a minimum of Rs1 lakh and a maximum of Rs50 lakh.

As per the revised SEBI regulation, the revised filing fee would be applicable to those schemes whose scheme information

document (SID)has been filed with SEBI on or after 1st July 2009

Top

Press News



The initial response to films funded by cinema-focused venture funds might not have been overwhelming, but that is not

stopping them from promising high returns.

Despite the bombing of films like Victory and The Stoneman Murders at the box-office, cinema venture capital funds are

promising up to 35 per cent return as against 18-20 per cent internal rate of return being offered by private equity and other VC

funds.

At present, Vistaar Religare Film Fund and Cinema Capital Venture Fund are the two cinema VCs registered with the capital

markets regulator, Securities and Exchange Board of India (Sebi).

Vistaar Religare has offered 30 per cent IRR, while Cinema Capital Venture is offering 25-35 per cent based on different

projects. Sources said that Walkwater Media, controlled by Manmohan Shetty and UTV, was also planning to launch film

funds.

―Once high networth individuals (HNIs) are assured of the returns and there is some amount of experience with these funds, it

will gather popularity as an asset class. Right now, a lot of people are apprehensive with the way movies are perceived — a

game of hits and flops. But these will add professionalism to the industry,‖ said an industry source who did not wish to be

identified.

Cinema funds are structured like a typical venture fund and invest in film projects through special purpose vehicles. They also

provide finance to companies, enterprises, entities and ventures involved in film production with an intention to generate risk

adjusted returns.

While the targeted rates of return seem too high for a high-risk industry such as movies, experts said the funds would

eventually be able to recover their costs through various rights associated with the movie. There are 42 rights, including

distribution, music, DVD and satellite to be recovered over 18 months.

―We are in the process of monetising rights for movies that have been released. It is not a co-production deal always. For

some movies, we work on P&A (print and advertising) deal projects wherein we fund the print and advertising campaigns. In

those cases, we are first ones to get out with our profit share. The fact that promoter group pumped in 20 per cent and we got

commitments from some of the large institutional investors was a great confidence booster,‖ said Vistaar Religare Chairman &

Managing Director Sheetal V Talwar.

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Subbu Subramaniam Leaves Baring Over Differences With Bhasin


N. ―Subbu‖ Subramaniam , a partner with Baring Private Equity Partners India, has quit the Delhi-based private equity fund on

a bitter note after 12 years of association with the firm. Subramaniam has quit over "professional differences" with the firm's

managing partner Rahul Bhasin (left), sources told VCCircle.

When contacted, Bhasin confirmed the development saying Subramaniam is no longer with Baring. However, the partnership

matters are yet to be settled as both the partners have appointed arbitrators to decide on the issue. A PE firm usually gets

about 2% of the funds under management and 20% of the profits from investment as carry.

In the case of Baring, the fund management fee would be about $15 million a year (since it manages $750 million) and would

also have a huge carry since it made a multibagger exit from Mphasis, besides others. Fund management companies spend

only a fraction of their management fee on running the firm while the rest are profits and belong to the General Partners (GPs).

Some GPs invest their profits in the funds itself and increase their shareholding. A split among GPs mid-way can create

problems in deciding the value of these assets.

In the case of Baring, arbitration proceedings to decide on the valuation of the partnership stake indicate that the split has not

been amicable.

Bhasin denied if Subramaniam's departure will have an effect on the fund. "He is not a key man in any of the funds," said

Bhasin. Under the "key man" clause, limited partners are allowed to pull back their investments or halt new investments if the

key management of the general partner or private equity fund manager leave. LPs of Baring include UK's CDC Group and

Evolvence Capital. Now the firm is left with three partners, which include, besides Bhasin, Munish Dayal and and Akhil

Awasthi.

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Harbinger Withdraws From Asarco Race; May Back Sterlite


Harbinger Capital, a hedge fund and one of US copper firm Asarco‘s largest bondholders, has decided to withdraw from the

race to take-over Asarco. This leaves the two key contenders India‘s Sterlite and Grupo Mexico in the race to gain control of

Asarco, according to this report. Sterlite may get the support of Harbinger Capital Partners in its take-over plan.

Although the report did not state any reason why Harbinger may back Sterlite, it is well known that the hedge fund( which has

support from Citigroup), earlier extended its support to Asarco in the fight against Grupo Mexico and the environmental suits.

Citigroup and Harbinger together comprise Asarco‘s largest bondholders and their support is crucial for Sterlite. It had also

said that it would oppose Grupo Mexico‘s bid.

BIDS AND COUNTERBIDS:

Harbinger earlier proposed a $500 million take-over offer to the US bankruptcy court in May, countering the bids of Sterlite and

Grupo Mexico, the former owners of Asarco. The fund house had termed Sterlite and Grupo Mexico as ‗unreliable suitors‘

while making its own proposal at the Southern District court of Texas.

Asarco, which filed for bankruptcy in 2005 with over $1 billion in environmental damage and asbestos claims, is seeking to sell

assets as part of a bankruptcy reorganisation plan. Sterlite had offered $1.1 billion in cash and a $600 million note. Mexican

miner Grupo Mexico, which acquired Asarco in a leveraged buyout in 1999 but lost board control of the company due to the

bankruptcy, has made a $1.55 billion competing offer for Asarco (including $1.3 billion in cash).

Sterlite Industries had recently increased its offer price for Asarco by $170 million to $1.87 billion to counter a revised offer by

Grupo Mexico which reportedly put in a fresh bid of $2.9 billion (including 1.3 billion in cash against Vedanta‘s $1.1 billion

cash). Sterlite raised the non-cash portion of its bid due to rising copper prices which makes the acquisition attractive.

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Red Fort Capital to pick up 50% stake in Noida project


Private equity fund Red Fort Capital will pick up around 50 per cent stake in a Noida residential project, a source familiar with

the development said.

The project —Lotus Boulevard, is spread over 40 acres in Sector 100 of Noida and is being developed by the 3C Company.

3C Company has already delivered over 12 million square feet of commercial projects, which includes Wipro‘s Gurgaon

campus and Patni Computer Systems Noida office.

―Red Fort Capital will acquire up to 50 per cent stake in the project. The total project cost is in the range of Rs 1500-1600

crore,‖ the source said.

A formal announcement on the deal will be made Thursday. With revival in demand for residential space, a number of private

equity funds are now looking to invest in realty projects.

The global economic downturn and liquidity crunch had forced many of realty funds to defer their plans of investing in India-

based realty projects. Red Fort Capital currently has one realty fund, Red Fort India Real Estate Fund I LP.

The private equity fund has already allocated over $400 million across 10 deals in India. In June, Red Fort Capital had

acquired an 18 per cent stake in a luxury residential project of Parsvnath Developers in Delhi for Rs 90 crore.

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DHFL Venture Capital Forms JV With Redwood Group


DHFL Venture Capital Pvt. Ltd has tied up with Redwood Group to raise a private equity fund focused on logistics and

warehousing. DHFL Venture Capital, which is registered with SEBI, is the subsidiary of India‘s third largest home finance

company Dewan Housing Finance Corp. Ltd.

The two firms have entered into a 50:50 JV which will raise funds from both domestic and overseas markets. While the fund

will raise $150-200 million from the international markets, it will also raise another Rs 150-Rs 200 crore from the domestic

markets, reports Business Standard.

Redwood has offices across Asia and Europe and was founded in 2006 with investments of $10 billion. Several Indian private

equity real estate firms have entered into joint ventures with overseas players to raise India-focused funds. While the overseas

partner can bring in the fund raising muscle, the Indian players can give the local expertise and connections to the fund

manager.

Another JV logistics fund is Indospace Logistic Partners, which is being raised by Future Capital Holdings and Realterm

Global, an American industrial real estate investment firm. Apollo's real estate division also runs a real estate fund, the $630

million Sun-Apollo Ventures, with Delhi-based Sun group. Last year New York-based Vornado Realty Trust partnered with

Mukesh Ambani-led RIL to launch $500 million fund to acquire, develop and operate retail shopping centers across key cities

in India.

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From $30M In 2006 To $300M In 2008; Cleantech Investments Shoot Up


Priavate equity and Venture capital investments increased by nearly ten times from $30M in 2006 to $300M by 2008,

according to a recent report by E&Y. PE/ VC players invested $527 mn in the sector –which also accounts for 24% of the total

transaction value in India for the period Jan 2005 and 21 July 2009.

Key PE/VC transactions include Moser Baer (investor CDC Group, Credit Suisse, IDFC, Morgan Stanley and Nomura

International); SE Forge (investor IDFC); Vestas RRB India (investor Merrill Lynch); Orient Green Power Company (investor

Olympus Capital); Cobol Technologies‘ (investor Pangea Capital).

It also saw significant transaction activity with deals worth $2,155 million announced between January 2005 and July 2009.

The average deal size (based on deals with announced value) stood at $69.5 million during the same period. Suzlon‘s

acquisition of REPower, worth $1,327 million accounts for 61.6% of transaction activity in value. Another significant transaction

was Gammon India‘s acquisition of a 50% stake in Sofinter for $101 million.

Kuljit Singh (Partner and Transactions Advisory Leader for Infrastructure, Real Estate and Government, Ernst & Young), ―The

recent years have seen the emergence of several funds with clean tech themes, venture capital backed development

http://www.business-standard.com/india/news/dhfl-venture-capital-in-jvredwood-for-logistics/366236/

companies being set up to aggregate assets in India, growth of carbon financing, etc. With this, greater depth will emerge on

the PE/ VC investments front.‖

According to the report, the country has immense Renewable Energy (RE) potential, which, if harnessed, can help it control its

emissions, without compromising on its economic growth, and also bridge the supply deficit to an extent. The sector-wise

break of the total RE potential in India is - wind energy (48,561 MW); small hydro power (15,000 MW); and Biomass (120-150

million tonnes of surplus biomass per year can be converted into 16,000MW).

Huge demand-supply gap in power, depletion of fossil fuels and energy security have been the key drivers behind sustained

investments in the sector, said the report. Government incentives such as Generation based incentives (GBI), accelerated

depreciation, tax holidays and subsidies are a step in the right direction.

The Government has outlined ambitious capacity expansion and investment plans for the eleventh five year plan period (FY07

– FY12). It has proposed an addition of 15,000 MW of RE generation capacity during the period. Wind power projects form

70% (10,500 MW) of the proposed capacity addition, while Small Hydro Projects (SHP) account for 9.3% (1,400 MW). The

total investments on development of RE during the plan period is expected to be about $2 billion, adds the report.

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Mahindras float in-house PE firm to fund new projects


The $6.3-billion Mahindra group has set up an in-house private (PE) equity division that will serve as a launch pad for new

projects within the group.

―What we have created is a new division within the group called Mahindra Partners. Loosely, it‘s a kind of private equity within

the group,‖ said Anand Mahindra, vicechairman and managing director of Mahindra & Mahindra. The PE vertical is a ‗fairly

significant change‘ in the architecture of the group, Mr Mahindra added. The PE vertical will be the group‘s growth driver of the

future, he said.

Along with serving as a launch pad for new projects and start-ups, Mahindra Partners will advise a division on exit strategies if

the group wishes to quit that business.

However, unlike corporate PE funds such as the ones floated by R-ADAG, Aditya Birla group, Nicholas Piramal and Tata

Capital, Mahindra Partners will not have specified earmarked funds. A private equity fund is a pooled investment vehicle used

for investing in equity.

―Each project and start-up will be evaluated and funded appropriately,‖ Mr Mahindra said. ―That‘s precisely the difference

between Mahindra Partners and a conventional PE or what other corporates are doing.‖

A typical PE fund faces pressure on redemption, say, after seven years. However, Mahindra Partners will be allowed more

elbow room to scale up its start-ups and not ―pressured to get in and out of a business within a certain period of time.‖ In

addition, the diversified Mahindra group‘s experience with new ventures has convinced it that the traditional external PE

culture is not growth-inducive.

―Club Mahindra took us 8-9 years to get critical mass and an IPO,‖ Mr Mahindra said. ―Also, if a corporate house simply

mimics a PE, why should it do better? After all, the real strength of a corporate group is management and institution-building .‖

From now, all new business opportunities for the group will be filtered through the new PE fund. ―Mahindra Partners‘ job is to

determine whether it can take a business to a point where it has enormous potential , fits in with the Blue Chip Mantras, in

which case then it is passed on through into the edifice of the Mahindra group,‖ Mr Anand Mahindra said.

The Mahindra group‘s new business ventures are based on its Blue Chip Mantras: global footprint or potential, innovation

quotient , sectors in which the group can be a leader and free cash-flow and return on capital employed. The Mahindra group

operates in 10 business areas. While the PE vertical will allow the group to find new business opportunities, it will also offer an

exit option for the ventures that don‘t meet the Blue Chip Mantra yardstick. ―Even if a business is incubated successfully, but

we don‘t believe we want it to become a part of the edifice of the group or we don‘t have the bandwidth to manage that, it will

be spun off and harvested in a classic PE fashion,‖ Mr Mahindra said.

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Tata Capital to launch private equity fund


Tata Capital, the financial services arm of the Tata group, is likely to come out with a private equity fund shortly. This was

announced by Tata Capital Managing Director, Praveen P Kadle, here on Tuesday. Kadle declined to say what could be the

size of the private equity fund, but according to early indications, the fund-size will initially be of USD 350-400 million. Tata

capital has an Rs 8,500 crore alliance with the Japanese Mizuho Financial Group.

And Kadle said the alliance with Mizuho provided the right platform for Indian corporates to tap the Japanese market. He said

Japan offered tremendous opportunities for Indian companies to raise capital through equity as well as debt.

Yukata Endo, deputy president of Mizuho, said Japanese corporations and retail investors saw India as a major investment

destination. "The Japanese retail investment has touched USD one billion and they are mostly through mutual funds," Endo

said, adding that the time is ripe for Japanese investors to invest in India, cashing in on the opportunities the market offers.

He said the Japanese were looking at India for big investments now as they felt the country along with China are poised for

sustained high-growth. Asked if Mizuho was looking at an equity stake in Tata Capital, Endo said "we have not discussed this.

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Mphasis Acquires AIG Systems Solutions


http://economictimes.indiatimes.com/Mahindras-float-in-house-PE-firm-to-fund-new-projects/articleshow/4879988.cms

http://economictimes.indiatimes.com/Tata-Capital-to-launch-private-equity-fund/articleshow/4881108.cms

http://economictimes.indiatimes.com/Tata-Capital-to-launch-private-equity-fund/articleshow/4881108.cms

Baring Private Equity backed Mphasis Limited, a Bangalore based IT and BPO company, is acquiring AIG Systems Solutions

Pvt Ltd (AIGSS), an India captive back office arm of the insurance major, American International Group (AIG).

With this acquisition, Mphasis strengthens its portfolio in financial services and insurance (FSI) verticals, said a press

statement. It will allow Mphasis to offer industry specific solutions to its customers. The FSI segment contributes around 39%

to Mphasis‘ total revenue. With the acquisition, around 800 employees of AIGSS will join Mphasis, which currently has 33,000

employees worldwide.

Ganesh Ayyar, CEO, Mphasis stated that the acquisition further strengthens its presence in the insurance segment. "Post the

acquisition, the company will be able to add greater value to its existing clients and wil leverage the opportunity to add more

clients," said Ayyar.

AIGSS is an India based company and part of American International Group. It provides IT services and solutions to AIG

companies worldwide. Its services include application development and maintenance, application implementation, testing,

product development and support services.

Mphasis Limited was formed in June 2000 after the merger of the US based IT consulting company Mphasis Corporation and

the Indian IT services company BFL Software Limited. In June 2006 Electronic Data Systems (EDS) purchased a controlling

stake in the company (52%) for $380 million and now operates as an independent EDS unit.

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TA Associates Raises $4 Billion Fund


TA Associates, a growth oriented private equity firm, has closed its new $4 billion private equity fund, TA XI, L.P. The fund is

the successor to TA X, a $3.5 billion fund which was closed in March 2006. TA Associates has an office in Mumbai, besides

offices in Menlo Park, London, and Boston.

TA Associates has been investing in India, and picked up a minority stake in Idea Cellular along with ChrysCapital in late 2006.

TA Associate's managing director Ajit Nedungadi, who is based out of London, looks after investments in India and other

emerging markets, besides Europe. The private equity firm also has Naveen Wadhera, a director based out of Mumbai, who

was previously with Goldman Sachs' Asian Special Situations group.

The new fund will look at investments in profitable, private companies in growth industries. The fund will look to make both

minority investments to buyouts with deal sizes ranging from $60 million to $350 million. TA Associates has invested in nearly

400 companies globally, and currently has over $6 billion in actively investing funds. In 2007, TA Associates closed a $1.75

billion private equity fund, TA Atlantic and Pacific VI, which was raised from non-US investors.

―Despite a challenging fundraising environment, there was notable investor interest in TA XI. We not only exceeded the

original target of $3.5 billion, but also did so in a relatively short time,‖ said C. Kevin Landry, Chairman and Managing Director

of TA Associates.

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FIPB Clears Warburg Pincus Investment in Synergy Media


Warburg Pincus (through investment arm Cliffrose) is picking 3.2% stake in Synergy Media Entertainment, the radio

broadcasting arm of media group Dainik Bhaskar for Rs 1.52 crore. The private equity major has received approval from the

Foreign Investment Promotion Board (FIPB), the nodal body for clearing foreign investment into India, for the deal. This deal

values the radio broadcaster at Rs 47.5 crore, marginally short of $10 million.

Synergy Media operates under the brand My FM. It started radio broadcast in Jaipur in May 2006 and has now expanded

presence to 17 stations including Ahmedabad, Ajmer, Amritsar, Bilaspur, Bhopal, Chandigarh, Gwalior, Indore, Jabalpur,

Jaipur, Jalandhar, Jodhpur, Kota, Nagpur, Raipur, Surat and Udaipur.

Apparently the deal agreement is almost two years old. DB Corp, the holding company of the media group which was in the

process of floating a public issue in 2008 had disclosed in its red herring prospectus filed with market regulator Sebi that the

promoters have entered into a agreement in December‘07 with Warburg for this transaction.

The transaction value has not changed since then and reflects the status quo on valuation in the sector. In some other

sections of the media industry current valuations are much lower compared to that last seen at the peak of the bull market

which ended in January‘08.

Warburg Pincus already holds 7.14% stake in DB Corp which was acquired for around Rs 150 crore in 2006, valuing the firm

at Rs 2,143 crore at that time. DB Corp had disclosed that Warburg was looking to exit its investments in the media group by

selling out to a third party investor. But the private equity firm is yet to sell the stake.

With the new transaction with Warburg Pincus, Dainik Bhaskar's holding will come down from 56.82% in Synergy to 55% post

the transaction. Another deal in the space is India Value Fund's investment in Music Broadcast Pvt. Ltd (Radio City FM), in

which the PE firm holds a majority stake.

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Sequoia Capital India Picks Up 6.8% stake in eClerx


Sequoia Capital India continues to cherry pick stocks from the open markets. The venture and growth capital investor has

picked up a 6.8% stake in eClerx Services Ltd from open markets for around Rs 43 crore. eClerx was one of the first Indian

knowledge process outsourcing firms to go for an IPO and was listed in 2007. The company provides data analytics and data

process management services to the retail, manufacturing and financial services industries.

The stake has been picked up from Burwood Ventures, an investment firm based in Virgin Islands which invested in 2005.

Burwood held a 17.49% stake in eClerx as of June-end, 2009. The stake was picked at a share price of Rs 330, near its 52-

week high of Rs 340. eClerx reported FY09 revenues of Rs 193.2 crore as against Rs 128.3 crore in the corresponding period

last year. The profits after tax for the year stood at Rs 61.8 crore.

Sequoia Capital India has been aggressively picking up stakes in companies from open market. Sequoia's managing director

Sumir Chadha told Mint in June that the firm had invested in seven listed companies between October and February 2009,

picking up stake from open markets. The investments have been made from Sequoia's first growth fund, whose size was $400

million.

It invested $9.3 million in Hyderabad-based Nagarjuna Construction Co. Ltd, and exited the investment at $22.3 million when

the markets bounced since May. Sequoia has also invested in Info Edge Ltd, the owners of Naukri.com. The other five public

markets investments are not known as they have been made using participatory notes.

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Nalanda Capital Picks Up Additional 2.2% Stake in Berger Paints


Singapore-based Nalanda India Fund is picking an additional 2.2% stake in Berger Paints to hike its existing holding to around

5.8%. Although the price at which Nalanda would subscribe to the fresh shares is not clear, at current market price it would

have to shell out around Rs 34.5 crore.

As of June 30, Nalanda held 3.7% in Berger Paints. According to a disclosure made to the stock exchange Berger Paints will

issue up to 7.2 million equity shares of a face value of Rs 2 each at a price not lower than the minimum price specified as per

Sebi guidelines for preferential issue.

The relevant date for determining the issue price shall be August 17, 2009. cKolkata-based Berger Paints is a Rs 1,500 crore

firm making it the second largest paint company in the country by revenues behind Asian Paints.

Nalanda Fund which is headed by Pulak Prasad, who was managing director with Warburg Pincus in India earlier, and went on

to set up his own fund couple of years ago has been pretty active in the stock market. It had been picking small stakes in small

and mid-sized Indian listed companies over the last few months through open market transactions.

Given that a number of transactions were sealed post September‘08 when Lehman Bros bankruptcy led to crash in stock

markets, it should be sitting on a good return in its portfolio companies or would have averaged out high priced buys in the

past. Some of its investments during the period include Triveni Engineering & Industries, Kirloskar Engines, Mastek, Sun TV,

Carborundum Universal, MindTree, Aztecsoft and Page Industries.

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SUUTI eyes Rs 7K cr from sale of 17% in Axis Bank

V.C.Circle– 17 August 2009

State-owned Special Undertaking of UTI (SUUTI) is looking to offload part of its stake in Axis Bank, country‘s third-largest

private sector lender, within next four months.

SUUTI holds a 27.02% stake in the bank and is looking to divest around 17%. It expects to realise Rs 6,000-7,000 crore from

the sale, a 13-30% premium over the Rs 870 closing price of Axis Bank share on the National Stock Exchange.

―With the market situation improving, SUUTI has restarted talks with investment bankers, including JP Morgan and Citi Group,

and is expecting to offload about 17% stake in coming months,‖ said a senior finance ministry official, who did not wish to be

identified.

Commenting on the premium that SUUTI is looking for, Tarun Sisodia, head of research at brokerage house Anand Rathi

Financial Services said: ‖Depending on the way in which the deal is structured, long-term players and strategic investors will

be willing to pay this premium which the government is looking for.‖

SUUTI‘s relative stake in the bank would soon drop from the current 27.02%, 97,224,373 equity shares, with the bank looking

to raise fresh equity through preferential allotment of shares, global depository receipts and qualified institutional placements.

Since SUUTI is not participating in this preferential allotment, its stake in Axis Bank would come down to 22.5%.

The special undertaking had earlier shelved its plans to offload its stake in Axis Bank in August 2008 due to lack of buyers, as

the stock markets had nose-dived following the liquidity crunch and the global financial crisis.

When asked whether LIC, the second-largest investor in Axis Bank, will be given preference as a prospective buyer the official

said, ―LIC has earlier shown interest in picking up SUUTI‘s stake in Axis Bank. But, due to opposition from certain quarters and

regulatory hurdles, government did not give a go ahead at that time. If LIC is still interested, we will re-examine that option

also.‖ The special undertaking will not be able to offload its entire stake in the bank because of a lock-in clause.

SUUTI was carved out of the erstwhile Unit Trust of India in February 2003 to take over about 25 assured return schemes,

including US-64, of the beleaguered UTI. While it was supposed to be wound up earlier this year, it has recently been given an

extension for another five years to March 31, 2014. The other major holding of the institution includes a 12% stake in ITC and

9% L&T.

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IndiaCo Ventures To Invest $2-5 Mn Each In Neo Corp, Grow VC


IndiaCo Ventures Ltd, a Pune based private equity firm, has received directors‘ nod to invest $2-5 million each in Madhya

Pradesh based manufacturing company Neo Corp International Ltd and UK based venture capital fund Grow VC Advisors Ltd.

The proposed investment will be made in the next 18 months time, Rahul Patwardhan, Vice-chairman and MD, IndiaCo

Ventures Ltd, told VCCircle.

Patwardhan informed that IndiaCo is not committing to put in $2-5 million to each of the firms, rather it will look at the

opportunities and invest on the basis of the capital requirements for the companies.

Neo Corp International provides applications for textiles, agriculture and infrastructure and construction industry. IndiaCo's

investment in Neo Corp is part of its regular investment activity. Investment in Grow VC will help IndiaCo to leverage

opportunities outside India, while at the same time it will help bring in technologies for the portfolio companies, said

Patwardhan.

IndiaCo invests from its balance sheet and has invested in three companies so far in the last two years. They include Verity

Technologies Pvt Ltd (25.64% stake), which provides value added services in telecom sector, Info Dynamic Telesystems Pvt

Ltd (48.93% stake) in telecom infrastructure and Laser Cosmetics Pvt Ltd (20.83% stake) in healthcare sector.

IndiaCo invests through three of its vehicles – IndiaCo Telecom, IndiaCo Healthcare and IndiaCo Clean Energy. These are

100% subsidiaries of IndiaCo Ventures and focused on telecom, healthcare and clean energy sectors respectively. Besides

telecom, healthcare and clean energy, IndiaCo is also interested in investing in several other sectors including manufacturing,

defense & aerospace, IT & education and educational institutes.

Though the company did not invest through IndiaCo Clean Energy aggregate vehicle yet, but Patwardhan informed that it has

been evaluating certain companies for making investment.

The company has posted Rs 3.9 crore as revenue in March 31, 2009, down from Rs 4.3 crore from its corresponding figure in

the previous year. The net profit was at Rs 1.1 crore in March 31, 2009 as compared to Rs 1.7 crore in the previous year.

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Compensation Hikes Muted For PE Industry This Year

V.C.Circle- 18 August 2009

Salaries of top Indian private equity professionals -- who take home anywhere between Rs 25 lakh to Rs 4 crore a year -- have

taken a knock this year as a result of a decline in deal flow and a lack of exits in 2008-09. And, it appears that the

compensation hikes will continue to be muted in 2010 with investors pushing for more returns on their buck.

―The compensation for the VC/ PE industry has saturated,‖ said Sunit Mehra, Managing Partner & Founder, Hunt Partners.

Shalini Sethi, Chairperson & MD, Emploi Globale, a Bangalore-based recruitment firm focused on the private equity and

investment banking industry, reflected the same sentiment: ―Existing funds have rationalised annual bonuses and raises (many

to nil). This has been done across funds.‖

According to a 2009 study of private equity compensation conducted by Hunt Partners, a recruitment firm focused on private

equity and venture capital, there has been a fall in the compensation of PE professionals especially at the vice president and

director level. They source, negotiate, and close transactions, monitor them and even sit on boards of portfolio companies.

Their seniors - managing directors/partners who make portfolio investment decisions and guide the firm‘s strategy– also could

not get a hike in their pay owing to a slowdown in deals and absence of liquidity events (such as IPOs and strategic sales) in

the last couple of years.

While most senior private equity pros took home around 10-15% less money than they did the previous year, their juniors -

associates and senior associate level – fared a little better. Salaries at the junior level –engaged in analytical and research

functions-- were higher across all funds and sizes (see table) as pay is a key talent retention tool in this segment.

No Big Bucks This Year

The compensation levels in the PE business predictably have a direct co-relation with deal flow. Indian private equity deals

have drastically fallen in 2008-09 compared to the boom days of 2007. There were 433 PE deals worth $15 billion in 2007

compared to 470 deals worth $11.7 billion in 2008. There has been a 20% decline in value of deals. Besides, many new funds

looking to set up office in India have put their plans on hold while firms such as Engelfield Capital and Babcock & Brown have

shut down their India operations; Lehman Brothers merged its PE operations with that of Nomura, all of which have resulted in

depressed hiring and salary hikes.

Industry recruiters VCCircle spoke to say salaries have rationalised across the board. ―In 2010, I do see this cautious approach

continuing as exits have got delayed and many funds may ask for extensions. So saving on compensation becomes the key to

the General Partners‘ strategy,‖ said Sethi.

There are also pressures and, in some cases, demands from limited partners (investors in funds) to moderate the excesses in

pay. ―Limited partners (LPs) are getting much tougher now on negotiating carried interest or carry (the gains from the fund over

and above the investment) with their General Partners (the partners in funds),‖ said Shekhar Purohit, Principal, Asia-Pacific

Leader for Executive Compensation and Corporate Governance, Hewitt Associates, an HR consulting firm.

Also, LPs are raising concerns over hurdle rate (minimum acceptable rate of return). LPs are telling GPs if they want 15-20%

of the carry, then they need to deliver more than the traditional 8% return. While some LPs are demanding 10% hurdle rate,

the preferred hurdle rate may go up to 9 or 9.5%. ―There is certainly a pressure to perform at a higher hurdle rate and

compensate for the additional incentive fee that PE funds are drawing,‖ said Purohit.

Compensation math

Most private equity firms work on a 2/20 compensation model, where they get 2% of the funds under management as fee

every year, and 20% of the profits as carry. Funds typically have a minimum guaranteed rate of returns of 8% (called hurdle

rate), and the team will be eligible for carry only if the returns cross the hurdle rate.

The management fee – a fund with, say, $1 billion under management, will get $20 million every year as management fee - is

used to pay salaries, meeting fund management and office expenses. The carry – which is usually several millions of dollars in

the case of a high performing fund – will be distributed among partners and other senior professionals at the end of the term of

the fund (about seven to 10 years).

The growth in management fee is dependent on whether the funds have been able to raise new funds. The fund raising

environment has been very tough since last year, and only pedigreed funds have been able to meet their targets. Many firms

have shelved their plans or are still on road to raise their second or third fund.

Also the salaries of the professionals are dependent on the size of the funds. The bigger the fund, the higher are the salaries.

A partner at a $250-500 million fund may draw a maximum of $242,000 a year, while his counterparts at a fund of $500 million

to $1 billion will get about $442,000 and at funds over $1 billion under management will get around $1 million or more. This

difference percolates down to principal/director and to the associate levels.

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Aavishkaar Picks Up 21% Stake In Saraplast

V.C.Circle-18 August 2009

Aavishkaar India Micro Venture Capital Fund (Aavishkaar), a Mumbai based venture fund focused on rural and semi-urban

India, has picked up 21% stake in Pune based Saraplast Pvt Ltd. Saraplast is a sanitation solutions provider, which operates

under the brand name ‗Shramik‘ or ‗3S‘. Saraplast will deploy the fund in expanding its presence across India and enhance

operations in waste management services.

Vineet Rai, founder and CEO of Aavishkaar stated that it has invested in Saraplast considering its necessity for social and

environmental development. ―Coupled with strong business logic, a highly scalable model and a dynamic management team,

we are building another early stage partnership with Saraplast that has far reaching positive consequences for the nation,‖ said

Rai.

Aavishkaar has raised $35 million so far, spread over three funds including Aavishkaar Goodwell Fund. Aavishkaar Micro VC

targets investments with a size ranging from Rs 10 lakh to Rs 2 crore in areas including renewable energy, dairy, healthcare,

agri-implements, besides other small and medium sectors.

From its initial funding in 2002 to Chennai based Servals Automation, a manufacturer of kerosene burner, Aavishkar has so far

made 23 investments and 17 of them are in rural ventures.Some of its existing portfolio companies include Servals Automation

(Chennai based rural technology firm which sells efficient kerosene burner and micro-irrigation device), Shri Kamadhenu

Electronics (involved in technologies for dairy co-operatives), Tide Technocrats (Bangalore based rural energy solutions firm)

and Craftsbridge (Pune based handicrafts firm)among others.

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Vistaar Religare Fund Invests In Hollywood Production 'The Jonses'

V.C.Circle- 19 August 2009

Vistaar Religare Film Fund (VRFF) has made an investment in a Hollywood movie starring Demi Moore and David Duchovny

titled 'The Joneses'. The film premieres at Toronto International Film Festival 2009 (TIFF 2009), which is scheduled to be held

on September 10-19, 2009. The Joneses is a comic drama, which is produced by Douglas Mankoff‘s Echo Lake Productions

that earlier funded Deepa Mehta‘s ‗Water'. The film is directed by Derrick Borte.

Sheetal Talwar, MD, VRFF stated that they are committed to funding good content and talent and will continue to fund Indian

films, besides funding mainstream Hollywood projects. This is the first investment by a SEBI-registered fund in a Hollywood

project. VRFF has earlier invested in a South African film called 'Finding Lenny'.

This development comes after Anil Ambani led Reliance Big Entertainment recently signed a deal to produce movies with

renowned Hollywood director Steven Spielberg's DreamWork's Studios.

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Warburg Pincus To Exit Dainik Bhaskar

V.C.Circle-19 August 2009

Warburg Pincus is completely exiting its three year old investment in Dainik Bhaskar group flagship DB Corp. The PE firm will

sell out its 7% stake in the company as a part of the initial public offer of DB Corp. DB Corp is coming with an issue of 24.78

million shares of which 12 million shares are on offer for sale from Cliffrose, an investment arm of Warburg.

According to VCCircle estimates the cost of investment for Warburg is around Rs 125/share after taking into account changes

in capital structure including bonus issue.

Incidentally, Warburg was earlier looking to sell a part of the shares it held. The original draft prospectus filed in late 2007(just

before the market crash) had said Warburg is looking to sell a part of the shares to a ‗third party‘ prior to the IPO.

At that point DB Corp was coming out with an issue worth 18.8 million shares. Although the issue was put on the backburner

even before a price band could be made public (after market tanked) the company was looking to raise more than Rs 660

crore which would have meant a valuation of over Rs 350/share. This would have valued the firm over Rs 6,500 crore, making

it one of the most valued media firms in the country at that time.

But as per the new draft filed now, the company is looking to raise much smaller amount of around Rs 270 crore. Since the

company is looking to issue a lower number of shares(12.75 million as against 18.8 million last year) it will have to price the

issue above Rs 210/share.

Although, the actual issue price is yet to be determined and would most certainly be less than what it had planned earlier, at

Rs 210/share as the lower end of the price band Warburg will stand to sit on a return of around 68% on its three year old

investment.

At this pricing, the company would be valued at around Rs 3,810 crore, ahead of media firms such as Jagran Prakashan,

Deccan Chronicle, IBN 18, TV 18, Zee News and NDTV.

The move to exit investment in the flagship company comes even as the PE firm appears to be going ahead with the other

deal, where it is picking a small 3.2% stake in the radio business of the group, Synergy Media for Rs 1.52 crore.

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Morpheus Venture Partners To Raise Rs 2 Cr Seed Fund


Bangalore-based startup incubator Morpheus Venture Partners (MVP) is considering raising Rs 1-2 crore ($200k-500k)

venture capital fund. The company is planning to target high net worth individuals (HNI) to raise the proposed amount.

Speaking to VCCircle, Sameer Guglani, co-founder of MVP, said that ―work on raising the fund is expected to begin in next

three months, wherein we would be targeting an investment of Rs 25-30 lakhs ($50-60,000) from each investor.‖ Guglani had

earlier co-founded Madhouse.in, an online DVD rental company, which was funded by Mumbai Angels. It was later sold to

Seventymm.com. MVP will invest Rs 5 lakh ($10,000) in each company under its portfolio, once the targeted fund is raised,

added Guglani.

The company, as of now, runs a 4-6 months Business Acceleration Programme (BAP), during which it extends assistance, as

a limited co-founder to start-up organizations under its portfolio in areas like product development and launch, team building,

devising a revenue model, customer relations, and other nitty-gritty‘s in exchange of 4% to 8% stake. MVP recently announced

the beginning of batch 3 of its BAP, which consists of ten new start-ups.

The batch 3 companies are very diverse in nature, as the business area varies from education domain, apparel, automotive,

advertising and financial services. Companies under batch 3 portfolio are - Adscoot, Easy Square Feet, Interview Street,

Naabo, Picsean, ReachTax, Retail Vector, RobotsAlive, Scopial and VeriCAR. The number of companies under the MVP

portfolio has increased to 20 in 2009 from four companies it had in its first batch, which commenced in January 2008. Of the

20 companies under its portfolio, three firms, Instablogs, CommonFloor and Crederity have raised venture capitalist funding.

Indus Khaitan, a Silicon Valley technology evangelist and entrepreneur, has recently joined founders Sameer Guglani and

Nandini Hiranniah as a partner at MVP.

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BanyanTree Picks Up 10% Stake in GEI Industries


BanyanTree Growth Capital LLC, a Mauritius based private equity fund, has picked up nearly a 10% stake in Bhopal based

GEI Industrial Systems. GEI is engaged in the manufacturing of air cooled heat exchangers, air cooled steam condensers, and

associated systems for oil, gas and power sectors.

The private equity fund is picking up the stake for around Rs 11 crore. BanyanTree will have a board representation. Mumbai

based Singhi Advisors were the sole financial advisor to GEI Industrial Systems in the deal.

GEI's FY09 revenues stood at Rs 213 crore, as compared to Rs 186 crore a year earlier. The net profit for FY09 stood at Rs

10.3 crore, as compared to Rs 9.2 crore in FY08. The stake has been picked at a price of Rs 75 per share. GEI stock, which

closed at Rs 63.85 yesterday, was up by more 10% touching a high of Rs 71.5 per share before settling down at around Rs

68. Promoted by first generation entrepreneur C.E. Fernandes, GEI is a leading provider of heat transfer solutions to the oil

and gas and the power sector. GEI specializes in air cooled heat exchangers and steam condensers.

A Centre for Science and Environment 2001 report said that thermal power plants discharge 27 trillion liters of waste water in

India and accounted for over 85% of total industrial water consumption. GEI‘s products help reduce the water footprint of these

plants and the firm plans to grow on the increased awareness about the environment. The new funds will be used to expand its

current production facility and its product offerings.

BanyanTree has made two other investments this year. Its investments include Kalpena Industries, a manufacturer of PVC

compounds; IT Infrastructure management services company Trimax IT Infrastructure & Services and synthetic rope

manufacturer Axiom Impex.

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Frontline Strategy Picks Up Secondary Stake in Tejas Networks


Private equity firm Frontline Strategy Ltd has made an investment in Tejas Networks Limited, an optical networking equipment

manufacturer in India. The investment comes out of India Industrial Growth Fund (IIGF), a $200 million fund launched in 2007

focusing on growth sectors and small and medium enterprises (SMEs). The fund's other investments are Krishna Saa Fabs

Pvt Ltd (a galvanizing/structural engineering firm) and Shriram SEPL Composites Pvt Ltd (a manufacturer

of glass reinforced polyester composite pipes).

Frontline has picked up the stake through a secondary transaction. In the issued release the firm did not mention the deal size

or from which shareholder of Tejas the stake was bought. Tejas has raised private equity funding from investors like Battery

Ventures, Cascade Capital Management (investment arm Gururaj Deshpande, co-founder and chairman of Sycamore

Networks), Mayfield Fund, Intel Capital, Goldman Sachs and Sandstone Private Investments.

Tejas Networks is an enabler of telecom infrastructure by developing carrier class communications equipment. The company

has raised around $70-75 million in funding, and investors reportedly hold nearly a 50% stake in Tejas. Tejas recorded

revenues of Rs 234 crore in FY07, up from Rs 128 crore in FY06 and Rs 47 crore in FY05. The company was founded in 2000

by four technology professionals — Sanjay Nayak, Kumar N Sivarajan, Arnob Roy and Deshpande. Tejas was planning to for

a public offering before the market crash.

Frontline Strategy has been making private equity investments since 2000. Some of its investments include CBay Systems,

Astra Microwave, Titagarh Wagons, among others. IIGF is sponsored by Madrid-based non-resident Indian Harish Fabiani.

Through different investment vehicles, the Fabiani family has invested in companies like Edelweiss Capital Ltd, Indiabulls

Financial Services Ltd and Nimbus Communications.

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PE-Backed HomeShop18 To Raise Funds In Next 12 Months


Private equity firm SAIF Partners-backed home shopping format HomeShop18, part of media group Network18, is on a fund-

raising course. HomeShop18 has initiated talks with prospective partners and is looking at raising funds over the next 12-

month horizon, a top official told VCCircle.

―We are in discussion with some prospective financial and strategic partners. The process is in a premature stage,‖ says

HomeShop18 CEO Sundeep Malhotra. HomeShop18 has outlined three priority areas for growth: To be visible in every

television household; to invest in customer experience; and, to reward loyal customers.

So far, Network18 and SAIF Partners have invested nearly $30 million in the venture, in which they hold 65% and 35% interest

respectively. HomeShop18 raised $10 million from SAIF Partners in the first round and, in July 2008, it raised another $21

million (SAIF Partners contributed $16 million and the balance came from Capital18).

HomeShop18, a 24X7 television channel for comprehensive retailing, has invested around $25 million over the last 14 months.

HomeShop18 claims, it has reached 1.5 million consumers across 2,700 cities in India. With 350 brands and over 20,000

products on offer, HomeShop18 clocks around Rs 1-crore sales per day and gets a new customer in every 12 minutes.

The company recently partnered with celebrity chef Sanjeev Kapoor to retail cookware and bakeware products of his brand –

Wonderchef, which he launched last year as a shop-in-shop format in Tata‘s Croma store.

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Religare Mutual Fund has launched a fund scheme that would invest primarily in debt securities and money market

instruments.

Religare Credit Opportunities Fund, an open ended income scheme, aims to beat its benchmark by investing in instruments

that offer superior yield, and would invest in short-term corporate bonds, Religare Enterprises said in a statement to the

Bombay Stock Exchange.

Religare MF is a part of Religare Enterprises, which is a diversified financial services group. The scheme, which closes on

August 25, offers retail and institutional plans.

"Credit markets have stabilised, liquidity is plentiful... with the gradual economic recovery, the prospective rewards for taking

credit risk across fixed income markets are attractive," Religare MF CEO Saurabh Nanavati said.

The minimum application amount under offer is Rs 5,000 for the retail plan and Rs 1 crore for institutional investors.

According to the company, no entry load will be charged on investments but an exit load of 0.25% would be applicable on

investments redeemed on or before one month of allotment.

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Six Private Equity Funds Show Interest in MCX-SX Stake Sale


India‘s newest stock exchange MCX Stock Exchange Ltd (MCX-SX) has attracted interest from around six private equity funds

for a 5% stake. The firms include General Atlantic, Fidelity International Ltd, hedge fund TPG-Axon, CME Group, Abu Dhabi

Investment Authority (ADIA) and a group company of Singapore‘s sovereign wealth fund Temasek, reports ET. This comes

after London Stock Exchange (LSE) and New York Stock Exchange Euronext (NYSE) showed interest to pick up a 5% stake

each in MCX-SX.

The promoters of the stock exchange, Financial Technologies (FT) and commodity exchange MCX, have already divested

30% stake to domestic public-sector and private banks and institutions, while the remaining 70% stake is with them. The

promoters intend to bring down their respective stakes to 15% each, in line with regulations that limit promoter ownership in a

stock exchange to 15%.

Out of the divested 30% stake, a group of banks including Bank of India and Union Bank of India hold 25%, while the

remaining 5% stake is with Industrial Finance Corporation of India Ltd (IFCI), which bought the stake for Rs 250 crore in July

2009.

In October 2008, market regulator Sebi gave approval to the exchange to commence trading in currency futures on the

condition that the promoters would divest their stakes within a year‘s time by September 30. In order to meet these guidelines,

the promoters have appointed Deutsche Bank, Nomura and Antique Capital Markets as bankers for the divestment.

Meanwhile, MCX-SX has also sought the regulator‘s approval to start equities trading which is pending subject to the

demutualisation.

As of July, the daily turnover of MCX-SX has increased tenfold to Rs 3,838 crore, up from Rs.324 crore when it was launched

in October 2008.

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Cybernet-SlashSupport Appoints Sreenidhi Sharma As New CEO


Private equity backed technology operations management firm Cybernet-SlashSupport (CSS) has appointed Sreenidhi

Sharma as the new CEO. CSS has four lines of business – enterprise support services, customer support services, remote

infrastructure management and application life cycle management. Sanjiva Singh, who was the interim-CEO of the firm, has

now taken the postion of President in the company.

Prior to his joining in CSS, Sharma, who is popular in the industry as Nick Sharma, was heading the infrastructure

management services (IMS) business at Satyam.

In July 2009, VCCircle reported that the firm has $30 million cash on its balance sheet and is looking to acquire a company

which could augment one of its four businesslines. CSS mentioned that revenue size of the target firm could be up to $50

million.

Speaking on the appointment, Ravi Adusumalli, investor (SAIF Partners) and board member stated that over the last few

years, CSS has established a strong referenceable customer base and Sharma's expertise will further help CSS to enhance its

next phase of growth.

Sharma said that he is confident to successfully enhance CSS Corp‘s business objectives to support IT needs of its customers

capitalising on its strong manpower, focused expertise, alliances and partners.

Prior to his stint at Satyam, Sharma was at Unisys, USA as Vice President and managing partner for infrastructure

transformation services. He was also Vice President and General Manager at Nortel Networks in the US, Canada and Latin

America and Vice president at Compaq. He is a BSc in Mechanical Engineering from Osmania University and an MS in

Industrial Management from the University of Texas.

CSS is headquartered in California and has its main development centre in Chennai. It also has offices in USA, Europe and

Philippines. In 2006, SAIF Partners had invested $22.5 million in CSS, which involved picking up of stake from Baring Private

Equity India and some through fresh issue. In 2007, CSS further raised a $25 million in a round led by Goldman Sachs.

Venture capital firm Sierra Ventures also holds a stake in CSS.

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Hedge Fund Brevan Howard Sets Up Mauritius Units To Invest in India


Europe's largest hedge-fund manager Brevan Howard Asset Management LLP has set up two Mauritius-based investment

entities to route funds from its flagship $15 billion Brevan Howard Master Fund to invest in India. The London-based fund

house, which manages $24 billion in assets world-wide, disclosed this in a stock-exchange filing last week.

Given its status as a tax haven, Mauritius is the most common way to route funds into India by both financial and strategic

foreign investors. Over time it has become the biggest source of foreign direct investment into the country even as there are no

big Mauritius located firm to have operations in India.

It is not clear if Brevan Howard already has an exposure in India market. In in disclosure to the London Stock Exchange, it

announced the creation of two trading subsidiaries BHIOF Investments Limited and BHMF Securities Limited.

"The purpose of each of the subsidiaries is to hold certain investments in India however the company does not expect any

such investments to be of a material nature," it said. So the two units may not lead to significant jump in inflows into Indian

bourses but it could open another channel of foreign money.

The interest of hedge funds on India could be due to sharp jump in stock prices over the last six months with the benchmark

index Sensex moving up over 75% from its lows.

UK-based fund house had escaped the blood bath faced by many other fund global managers as stock markets tanked

through much of 2008 and specially after Lehman Bros declared bankruptcy in September‘08.

Alan Howard, the firm‘s co-founder and biggest shareholder, switched assets to cash before the credit crisis blew apart.

Howard, a former head of the proprietary trading desk at Credit Suisse First Boston, had started Brevan Howard seven years

ago with four other colleagues.

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RBS Hires Anil Gudibande From AIG Private Equity


Anil Gudibande has been appointed to head the corporate financing and risk solutions (CFRS) division of Royal Bank of

Scotland (RBS) in India, reports FinanceAsia. Gudibande joined AIG Investments in mid-2008 as part of its private equity

team. Before AIG, Gudibande was part of Citi India.

The main areas of responsibility for Guibande would be to develop the bank's CFRS business and to compliment and enhance

some of its key relationships in the global banking and markets business. Guibande will be placed directly under the RBS

country head for global banking and markets in India, Madan Menon and Sanjeev Kumar, who heads the CFRS division in the

Asia-Pacific region.

This appointment comes even as RBS is in talks with UK bank Standard Chartered Plc to sell commercial and retail

businesses in China and India.

RBS faced bankruptcy due to the economic melt down after it recorded the highest ever loss by any British company

amounting to £24.1billion in 2008, before the British-government agreed to pump in £25.5 billion capital to save the ailing bank.

RBS has reported a net loss of £1.04 billion in the first half this year.

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Value of deals falls 66% in H1: Grant Thornton


The total value of deals, including mergers and acquisitions (M&As) and private equity (PE), in the first half of 2009 dropped 66

per cent to $7.81 billion from $23.02 billion in the first half of last year.

While Indian corporates witnessed fewer M&A transactions and PE investments, there were signs of recovery in the economy

in the second quarter of the current year, said a study by Grant Thornton. The total number of M&A deals announced in the

first six months of 2009 stood at 123, with a total value of $4.93 billion. Cross-border M&A deals have fallen from $12 billion in

the first half (H1) of 2008 to just $1.4 billion in H1 of 2009, declining more than 85 per cent.

The value of domestic deals also dropped to $3.5 billion in 2009 as against $4.3 billion in the H1 2008. The number declined

from 110 to 64. ―Indications of a recovery combined with an increase in availability of finance seemed to have increased the

appetite of India Inc for M&As and PE investments. ―Companies are also involving themselves in value-enhancing

restructuring exercises to better leverage their scale. There is also a surge in inbound transactions as global MNCs are once

again looking for opportunities to operate and benefit from the Indian markets‘ growth and cost efficiencies,‖ said Harish H V of

Grant Thornton. The top five M&A deals accounted for more than 69 per cent of the total value of deals in H1 2009 compared

with more than 57 and 73 per cent in H1 of 2008 and 2007, respectively. Most top five deals in 2009 were domestic, which is

significant considering the large cross-border deals witnessed over the last two years.

―The slowdown was primarily witnessed in outbound deals, which declined from 108 in H1 2008 to 27. In terms of sectors, the

first half of 2009 saw significant participation by sectors such as oil and gas, telecom, information technology and information

technology enabled services,‖ said the report.

A half-year analysis of PE investments in India shows a mixed trend. PE deals have declined from $6.93 billion (185 deals in

H1 2008) to $2.89 billion (93 deals in H1 2009). The Q1 of 2009 witnessed 43 deals amounting to $904.44 million compared

with 50 deals valued at $1.98 billion in the second quarter. The deal value more than doubled in the second quarter over the

previous quarter. The highest proportion of PE/VC (venture capital) investment was in real estate and infrastructure

management, shipping and ports, and telecom —$1.61 billion, $161 million and $129 million respectively.

Och-Ziff Capital Management, Orient Global, Sandstone Capital, HSBC, Morgan Stanley and Prudential‘s investment in

Unitech for $352 million was the largest PE investment in India followed by HSBCs investment of $ 300 million in Indiabulls

Real Estate through a qualified institutional placement.

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Mutual fund AUM crosses Rs 7 lakh cr in July

PTI - 14 August 2009

The mutual fund industry's assets under management (AUM) touched a new peak at the end of July, crossing the Rs seven

lakh crore mark for the first time ever.

Riding on the back of fresh inflows into various schemes, the MF industry's AUM totalled Rs 7.20 lakh crore — a 24 per cent

rise over the previous month, Crisil FundServices said in a report.

Income and liquid funds saw strong inflows in July, with banks again parking money in mutual funds after withdrawals in June

end to meet quarter-end capital adequacy related requirements," Crisil FundServices Director Krishnan Sitaraman said.

Also, the nore than eight per cent rise in country's stock market barometer Sensex, on the back of strong foreign fund flows

and renewed investor confidence, during July, helped up the AUMs of all the fund houses.

"The positive market momentum saw continued interest in equity funds," Sitaraman said.

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Inflows into gold ETFs rise 32% year to date

Business Standard - 19 August 2009

With exchange-traded funds (ETFs) fast gaining popularity among investors, including those from overseas, Indian ETFs

which track gold are witnessing substantial increase in inflows.

Despite the fact that prices of the yellow metal are highly volatile, inflows into gold ETFs have jumped 32 per cent year to date

compared with the same period last year. According to figures available with the Association of Mutual Funds in India (Amfi),

gold ETFs have seen net inflows of Rs 176 crore during the period under review, as against Rs 133 crore in the corresponding

period last year.

Currently, there are six gold ETFs in the market — one each from Benchmark, UTI, Kotak, Quantum, SBI and Reliance Mutual

Fund.

Gold ETFs are open-ended mutual fund schemes that invest in standard gold bullion (0.995 purity). In these ETFs, the

investor‘s holding is denoted in units, which get listed on a stock exchange. These are passively-managed funds designed to

provide returns comparable with that from physical gold in the spot mark.

―We have seen awareness about gold ETFs increase over a period of time. Earlier, people were not aware of this asset class.

But now, the investor interest in physical gold is gradually shifting to paper gold, which is a healthy sign. There has been an

increase in the inflows for us as well,‖ said Rajan Mehta, executive director, Benchmark Mutual Fund.

Fund houses too seem to be excited about the asset class. Religare Mutual Fund has already moved the Securities and

Exchange Board of India (Sebi) for a gold ETF and Reliance is planning to launch a gold savings fund.

―We are quite bullish on ETFs as a product but there is not much awareness right now. There are no product-pushers for ETFs

as trading is done through exchanges. Around 96 per cent of investment products in India are sold on distributor

recommendations. However, with the Sebi ban no entry load, gold ETFs will find more acceptance. High net worth individuals

(HNIs) will take to ETFs because of their low-cost model,‖ said Jaideep Bhattacharya, chief marketing officer of UTI Mutual

Fund.

―Investors must allocate at least 5-10 per cent of their portfolio to gold irrespective of market conditions,‖ said Sundeep Sikka,

chief executive officer, Reliance Mutual Fund. The total assets under management (AUM) for gold ETFs currently stands at Rs

865 crore, which is less than 1 per cent of the total AUM of the mutual fund industry.

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Indian mutual fund industry to revisit fund

Mint - 23 August 2009

India has 36 asset management companies (AMCs) and at least some of them are planning to start their own distribution

business instead of selling funds through third-party distributors

Mumbai: The Rs7.2 trillion Indian mutual fund industry is revisiting its business model to be in sync with the new norms put in

place by the capital market regulator, the Securities and Exchange Board of India, or Sebi.

India has 36 asset management companies (AMCs) and at least some of them are planning to start their own distribution

business instead of selling funds through third-party distributors. Among other things, they plan to cut distributors‘ commission

by 25-30 basis points (bps) and shift their focus from frequent churning of funds to managing money for the longer term.

Sebi banned fund houses from charging investors an upfront fee of up to 2.25%, known as entry load, from 1 August. That

encouraged fund houses to fine-tune the exit load, or the penalty they charge investors on premature redemptions, from six

months to three years. In other words, fund houses have forced the investor to lock in their investment for three years if they

do not want to pay the exit load.

The exit load is currently capped at 1% of investment. However, only retail investors are subjected to this and fund houses do

not charge the exit load on any investment of Rs5 crore and above.

The plan was to use the exit load to take care of the commission paid to the distributors. The fund houses also announced a

new incentive structure for distributors ranging between 0.5% and 1.25%. JM financial However, this move has not gone down

well with the market regulator. It has directed fund houses to bring parity in the exit load for all class of investors, irrespective

of the amount of investment.

It also said fund houses should follow a uniform exit load structure for all plans within a scheme. Normally each mutual fund

scheme has different plans catering to different classes of investors.

Sebi asked the fund houses to limit the lock-in period to one year. The three-year lock-in, planned by AMCs, would have

covered a major portion of equity fund investments in the industry.

According to the industry lobby Association of Mutual Funds in India (Amfi), 57.23% of all the equity investments as of 31

March were less than two years old. The rest of the corpus was more than two years old, but Amfi does not specify the

maturity profile.

According to Rajesh Krishnamoorthy, managing director of iFast Financial India Pvt. Ltd, a transaction intermediary, ―a

minuscule portion of assets would be more than three years old‖.

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MUTUAL FUND INDUSTRY TRENDS

www.iTrust.in - 26 August 2009

Scheme Mergers by various Fund Houses

In the recent past, UTI, ING and JM Mutual Fund have merged few of their schemes with small AUM into larger schemes.

Following the trend, Kotak, Principal and Fidelity Mutual Fund merged some of their small schemes into their large schemes in

the month of July.

Such mergers may result in lesser overhead cost and better management of schemes. They may also result in reduction of

number of duplicate funds within the same asset management company

Kotak Technology fund, Kotak MNC and Kotak Global India being merged with Kotak Opportunities; while Principal Junior Cap

was merged with Principal Emerging Blue chip fund. These are the examples of few recent mergers in the industry

Increasing Exit Load - An impact of No Entry Load Structure

The exit load and minimum time period of stay in the fund has been increased by the fund houses, as an impact of entry load

removal from the mutual fund schemes

Earlier, the fund houses used to charge 0.5% - 1% if the scheme is redeemed before 1 year of investment. But, post the

removal of entry load from mutual fund schemes, majority of fund houses have increased the exit load rate up to 1%. The

minimum time period of stay in the fund for avoidance of exit load is also increased to 2-3 years

Though such a measure may hamper the ease of short term liquidity for an investor, but will help in emphasizing the long term

investment philosophy

Increasing Mutual Fund Asset Under Management (AUM) in July 2009

The AUM of the Indian mutual fund industry has increased by 24% in July 09 to reach Rs 7.2 lac crore mainly due to the

surging stock market and launch of new fund offers by various asset management companies

Out of 35 existing Asset Management Companies, 24 AMCs have seen increase in their AUM. Reliance continues to be the

market leader with AUM of Rs 1,08,334 crore (approx) followed by HDFC and ICICI Prudential AMC

However, Morgan Stanley MF, JM MF, HSBC MF, ING MF, Mirae MF, Sahara MF etc are few of the fund houses whose AUM

has been declining on a month-on-month basis

Many Mutual Fund Companies eying to launch Gold Funds

IDFC, Reliance, Sundaram BNP Paribas, UTI and Religare MF have sought approvals from SEBI to start gold funds. Majority

of these schemes will invest in securities of mining and jewellery companies. Few of theses schemes may also act as feeder

funds to existing exchange-traded funds.

Since the investors are not allowed to invest in Gold ETFs without a demat account, such a move will enable more retail

participation in Gold Fund

Sectoral Picks of Fund Managers

Banking & Financial Services, Oil & Gas, Engineering, Cement and IT sector are the top 5 sectors where approx 56.6% of total

net assets of the various fund houses are invested

The Fund manager has taken minimum exposure in Tobacco, Real Estate and Consumer Durable sector this quarter

Reliance, HDFC and UTI have taken the maximum exposure in Banking & Financial Services totalling to approx Rs 12,149 cr

and top 3 contributors to the engineering sector are Reliance, SBI and UTI totaling Rs 7,831 cr

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Shinsei AMC launches Industry Leaders Fund

Economic Times - 27 August 2009

(India) launched its maiden equity scheme christened as Shinsei Industry Leaders Fund. The new fund offer for the scheme

opened for subscription on July 27 and will close on August 25

Shinsei Industry Leaders Fund is an open ended equity scheme which will invest in equity and equity related securities of

companies identified as ―Industry Leaders‖.

An Industry Leader is a company which in the opinion of the fund manager, has the following attributes:

A) Attained a major market share in India and possesses the potential to maintain or increase its market share in one or more

products or services within its principal sector. B) Been among the companies registering the highest growth rates in sales

in the sector over the last three years. B) Been among the most profitable company in the sector over the last three years.

Benchmarked against the BSE 100 index, the scheme offers both growth and dividend options to investors.

B) Speaking on the occasion, Sethuram Iyer, CIO Shinsei AMC said ―there is a strong investment rationale for this product as

industry leaders tend to have significant business advantages which in general translate into better stock market

performance.‖

David Pezarkar, Head – Equities at Shinsei AMC is the designated fund manager for scheme

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SBI set to take over UTI AMC, create biggest fund house

Economic Times - 27 August 2009

The State Bank of India (SBI) is close to taking control of UTI Asset Management Company (AMC). SBI outbid the other three

sponsors. Earlier this year, the government had decided to put the AMC on the block, but restricted the bid to the four original

sponsors - SBI, Life Insurance Corporation of India (LIC), Punjab National Bank (PNB) and Bank of Baroda (BoB).

SBI is now poised to gain control of the AMC, with the government set to approve the deal, according to industry officials privy

to the development. The realisation for the deal is reckoned to be over Rs 1,000-1,500 crore. The proposed transaction will

result in the emergence of the biggest fund house in the country.

UTI AMC is the market leader in the domestic mutual fund business, with assets under management (AUM) aggregating Rs

21,000 crore, while SBI's mutual fund arm, SBI MF, manages assets worth around Rs 7,200 crore. UTI AMC has over 35

schemes on offer, while SBI MF offers over a dozen schemes.

No clarity on who will service UTI's tax-free bonds:

UTI AMC was carved out by transferring all the net asset value (NAV)-based schemes to a new outfit, following the bifurcation

of the assets and liabilities of the erstwhile UTI in '01-02. SBI, LIC, PNB and BoB were told to put in Rs 2.5 crore each by the

http://economictimes.indiatimes.com/Markets/Stocks/Stocks-in-News/Shinsei-AMC-launches-Industry-Leaders-Fund/articleshow/4856575.cms

then government to sponsor the new AMC, with a view to managing a holding operation until its selloff.

SBI fits the bill, given its financial muscle and the fact that its fund management business is growing. However, the bank will

have to merge UTI AMC with its own mutual fund, considering that a bank cannot be a sponsor of two AMCs.

It may have to seek regulatory forbearance for running the AMC until a merger is completed, or take advantage of a clause

which was signed by the sponsors, which allows for third-party management of assets. This is subject to the condition that all

statutory requirements are complied with.

However, there are other thorny issues which may need to be ironed out. The fact that a French bank - Societe Generale holds

a 37.5% stake in SBI's mutual fund arm - could gain access to the largest domestic MF distribution network and investor base

through this transaction may ruffle political feathers. This is in the context of the opposition by the Left parties to any selloff in

the public sector.

Moreover, a potential conflict may arise with SBI Caps, a subsidiary of SBI, being given the role of an advisor. The valuation

exercise was carried out by two valuers assigned by the investment bank.

A question mark also hangs over the management of assets on behalf of UTI's specified undertaking, done by UTI AMC so far.

Besides, there is no clarity on the issue of who will service the tax-free bonds amounting to thousands of crores, which mature

by '09.

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PTI - 27 August 2009

The country‘s burgeoning mutual fund industry is expected to see its assets growing by 29 per cent annually in the next five

years, with high household savings rate and low retail penetration attracting foreign asset managers, a report has said.

"The total assets under management in the Indian mutual funds industry are estimated to grow at a compounded annual

growth rate (CAGR) of 29 per cent in the next five years," the report by global consultancy Celent said.

The pace of the growth in assets is expected to be higher in the years ahead as compared to the CAGR of 25 per cent

witnessed in 2004-2009 period. "A very high household savings rate and low retail penetration make the market a target for

foreign asset managers,"

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International News

Singapore PE Firm Orient Global Exits India Infoline At A Loss


Singapore-based billionaire Richard Chandler led investment firm Orient Global has exited its one and half year old investment

in financial services group India Infoline, apparently at a loss of more than 50% according to VCCircle estimates. Orient Global

had invested in India Infoline at the peak of the bull market and at the end of March‘08 held over 11% stake through two

funds—Orient Global Tamarind Fund Pte and Orient Global Cinnamon Capital Ltd.

Orient Global had picked stake through a preferential allotment in early 2008 after striking the deal in November 2007. It had

picked 3.7 million shares at a price of Rs 1,500/share costing about Rs 550 crore (after stock split the shares cost works out to

Rs 300/share) and valued the firm at Rs 8,564 crore (~$2.1 billion at that time).

This transaction was part of a multiple deal where Orient Global picked minority stakes in two other businesses of India

Infoline. It had announced investments of $50 million to pick 10% in the Mumbai-based financial services firm‘s insurance

broking subsidiary and put in $76.7 million (Rs 300 crore) for a 22.5% stake in India Infoline Ltd‘s consumer finance subsidiary,

India Infoline Investment Services Ltd.

Orient Global had then picked around 5% in India Infoline through open market in the Jan-March‘08 period, which could have

been to average out the high priced transaction struck earlier. It is estimated that the firm put in close to Rs 300 crore to pick

this additional stake which brought down the cost of investment to around Rs 260/share after stock split. As of March‘09 Orient

Global held 11.5% in India Infoline. It sold some shares in the April-June quarter and exited the investments completely last

week in what could have fetched it around Rs 400 crore against the cost of investment of Rs 850 crore. This means it took a

haircut of around 53%. It is not clear what is the fate of the two other deals—insurance broking and consumer finance

business of India Infoline. Consumer finance in particular has been hit hard by the economic slowdown and many firms in the

business have either rolled back their exposure or exited the space completely.

Orient Global is sitting on a profit in its other investment which was struck right after the market crash -- minority stake in Cairn

India. It had acquired 2.6% in a deal worth Rs 1115 crore at Rs 228/share. Cairn India scrip closed at Rs 243, around 5%

above the cost price of Orient Global.

Top

Blackstone Beats Estimates, Has $29 Bln To Invest


Private equity firm Blackstone Group LP reported higher quarterly earnings on Thursday, topping Wall Street expectations, and

said it was sitting on its biggest cash pile ever, with $29 billion to deploy.

The credit crunch and lack of financing have meant private equity firms have struggled to spend money on leveraged buyouts

over the past year, and thus have large amounts of cash, known as "dry powder," to invest. "We now have $29 billion in dry

powder, the largest amount of available capital in the firm's history, and it couldn't come at a better time," Chief Operating

Officer Tony James said on a conference call. Times of market turmoil and dislocation are when Blackstone can find its most

profitable investments, he said. Blackstone, in a consortium that included rival private equity firm Carlyle Group, struck a deal

in May to buy troubled Florida lender BankUnited Financial Corp.

Top

LGT Capital Announces First Close Of Secondaries PE Fund At $268M


LGT Capital Partners has held a first close its Crown Global Secondaries II plc (CGS II) at $268 million. The secondaries

private equity market provides liquidity to private equity investors, allowing them to sell positions in private equity funds and

liquidate equity stakes in private companies.

Tycho Sneyers, Partner at LGT Capital Partners, comments: ―With a target of $750 million, we are raising a mid-sized

secondary fund which allows us to be very selective and focus on those transactions where we have proprietary insights. We

believe our disciplined approach of acquiring high quality assets through smaller, less intermediated transactions will achieve

attractive returns while taking limited risks.‖

Ivan Vercoutere, Partner at LGT Capital Partners, adds: "We have already completed five attractive transactions for CGS II,

where we have acquired a total of 13 underlying funds with portfolio investments in the US, Europe and China. These

transactions have performed very well as we have been able to acquire high quality and well performing assets at very

attractive prices. The current environment plays to our strength of targeting less competitive mid-market transactions.‖

LGT Capital Partners has been investing in secondaries for over 10 years, and over that period the firm claims to have

achieved a 25% IRR (without the use of leverage in completing transactions) on $1.3 billion of secondary investments.

Top

John Harley Appointed Ernst & Young Private Equity Head


In a major reshuffle of the top management, International accounting firm Ernst & Young, has appointed John Harley, the

current chief of Private Equity for Europe, Middle East, India and Africa to head its private equity division replacing Simon

Perry.

―John brings an outstanding depth of knowledge and experience to this role. This will be invaluable as we continue to develop

our private equity capabilities,‖ said Steve Almassy, Global Vice Chair, Office of the Chairman Accounts and Industry on the

appointment of Harley in a release.

He further added that ―with $1 trillion of committed capital to invest, private equity continues to have a pivotal role in the global

financial system. This is despite the current lack of liquidity, which is forcing firms to do fewer deals and to turn their attention

toward improving the performance of their portfolios‖.

The elevation to the top post is in continuation with the numerous important assignments Harley has been entrusted with, soon

after joining the firm in 2000 as the chief of its technology, media and telecommunications corporate finance practice.

In 2003, he was given the responsibility to overlook the running of its TMT European team, a position, which he overlooked till

2005, before being appointed as the global vice-chairman of accounts, industries and business development.

Top

Temasek's New Charter Looks To Downplay Govt Links


Temasek, the largest sovereign wealth fund active in India has changed its global charter which emphasises its mission "to

create and deliver sustainable long-term returns for our stakeholders". The charter, which was first made public in 2002, stated

earlier that the Singapore government — through Temasek — needed to own and control firms deemed critical to the city-

state‘s security, economic well-being or public policy objectives. This earlier note has been struck off in the revised charter.

Analysts view this as Temasek downplaying its links to government policy or strategic interests, as it eyes more overseas

assets.

Temasek chairman, S Dhanabalan, said, "Temasek's mission remains to create and deliver sustainable long-term returns for

our stakeholders. We have refined our Charter to more clearly articulate our focus as a value-oriented investor, and also as a

shareholder focused on achieving sustainable returns by engaging with the boards and management of our portfolio

companies. We will continue to review our Temasek Charter regularly, and update it as needed in consultation with our

shareholder, to ensure that it remains relevant to our current activities and aspirations as an institution."

Over the years, as Asia evolved, Temasek‘s underlying exposure outside Singapore has gone up. Currently, two-thirds of

Temasek‘s underlying portfolio is outside Singapore, as compared with a predominantly Singapore portfolio seven years ago.

Even today Temasek holds controlling stakes in many bluechip local firms such as Singapore Airlines, but has built overseas

exposure.

Some of the Indian firms where it has invested include Bharti Airtel, Tata Sky, Bharti Infratel and ICICI Bank. Temasek had last

year faced sharp drop in portfolio value as it sold shares of Bank of America(which it got after the merger with Merrill Lynch

where Temasek originally invested) and Barclays. But Temasek CEO Ho Ching has reiterated that the fund house will still

consider picking stake in Western financial sector firms.

The updated charter has however maintained status quo on the Singapore President‘s approval for the appointment or

removal of Temasek‘s board members and CEO. Temasek is looking for a successor to Ho after designated successor Chip

Goodyear, a former BHP Billiton CEO, unexpectedly resigned last month, reportedly, over differences in strategy.

Top


Reuters – 12 August 2009

Manulife Financial Corp said on Wednesday it has bought AIC Ltd's Canadian retail investment fund business, boosting its

mutual fund arm in another big-player takeover of an independent fund company.

Manulife, which did not disclose the value of the deal, said the move to buy Burlington, Ontario-based AIC's funds will boost its

retail fund assets under management to C$13.7 billion ($12.5 billion) and be "accretive" to earnings, but declined to speculate

on how much or when it expects the purchase to add to profits.

AIC, whose chairman, Michael Lee-Chin, has touted the firm as a "buy-and-hold" investment manager in the mold of Warren

Buffett, had mutual fund assets under management of about C$3.8 billion, the two companies said in a statement.

The deal is expected to close by Sept. 25, Manulife said. Manulife Canada Chief Executive Paul Rooney said the purchase

was a great fit for both companies. "This is a significant boost to Manulife's wealth management business in Canada,

particularly since it adds top-quality funds and AIC's focused investment style to our already-strong lineup of funds," Rooney

said in a statement. Manulife said its mutual fund arm will manage all AIC funds in Canada, while AIC's investment

management arm will continue to run 12 funds as an external manager under a new name. AIC will continue to sub-advise on

a number of its flagship equity funds. "This sale reflects our overall strategy to return to our roots of managing money and

concentrate on our investment advisory services," Lee-Chin said in a statement. AIC's investment management arm will

become a unit of Lee-Chin's privately held Portland Holdings Co after the deal, he said. "Our intent is to build on our core

competencies and service the investment advisory market across Canada," Lee-Chin said in a statement.

Top

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MF and VCF Updates - August 2009

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