The Hindu Business Line : Bargain hunting funds enter as American VCs exit

Bangalore, Sept. 21 A new breed of venture capitalists is quietly beginning to enter Indian markets even as American VCs are actively exiting in droves.

Most of the US-based venture capitalists operating here have hit the ‘stop loss’ button as part of a global de-leveraging exercise. They are shedding assets to settle liabilities, especially debt. Most of them had in the past essentially resorted to leverage buyouts in India. They used borrowed funds to buy equity, given the low dollar interest rates and the equity market boom.

But the exit of American VCs and foreign institutional investors (FII) is now bringing in other venture capitalists looking for bargain picks. Leading the charge is a little-known Bahrain-based VC, Sameena Capital. Its President, Mr Shirish Saraf, said, “We are long-term players and are not looking at start-ups in India. At current levels we see a lot of value in India’s enterprises.”

Sameena has created an open-ended fund of $350 million, he said. The funds would be invested in backend infrastructure operations, which included meeting the funding requirements of ancillary suppliers for power equipment producers, aircraft maintenance and repair operations.

Mr Saraf said Sameena would look to have a say in the management. “We look forward to nurturing each of the businesses we invest in.” The nurturing, he said, would involve some financial engineering of the entities. He said the company was open to investing either through equity, preference shares or in the form of mezzanine funding (hybrid funding that allows debt to be converted into equity). However, it has high return expectations. “We are looking for returns in excess of 25 per cent,” he said. The returns would be in dollar terms because the VC’s liabilities were largely dollar denominated. The plus side to the entry of such VCs is the absence of country exposure limits. US investors mostly had country exposure limits, as only a small portion of their corpus was allocated for emerging markets, including India.