Siddhartha’s suicide unfortunate, govt should avoid knee-jerk reaction: EY India chief

KR Srivats New Delhi | Updated on August 05, 2019 Published on August 05, 2019

Rajiv Memani, Country Managing Partner, EY India   -  PTI

PE funds must be seen as a long-term source of capital, says Rajiv Memani

The private equity industry has played a key role in India’s growth story, especially in the start-up, tech and financial services spaces. So regulators and the government should focus on a “matured” approach in dealing with incidents such as Cafe Coffee Day boss VG Siddhartha’s suicide, according to Rajiv Memani, Country Managing Partner, EY India.

Describing Siddhartha’s suicide as “very unfortunate”, Memani told BusinessLine that it was unlikely that a private equity player would have pushed this “exceptional entrepreneur” into this extreme step.

“Siddhartha was a smart financial guy. I don’t think he would have wilted under any form of pressure. Hard for me to say as I don’t know the complete facts of the case,” Memani said.

He said that the private equity industry in India is now matured and nearly $200 billion private equity money has come into India in the last two decades.

“Documentation is standardised. There is enforceability of contract in most cases and India has performed well on this. That’s why we see more PE money coming into India every year”, he said.

Memani hoped the government and regulators will not react in a knee-jerk manner following this incident. “If it is an issue of performance contract, should the government be intervening in every dispute?”

It may be recalled that Siddhartha’s suicide note had mentioned pressure from one of the private equity partners forcing him to buy back shares besides harassment by income tax authorities.

Asked if Siddhartha’s suicide was a blemish in an otherwise successful PE story in India, Memani replied “I hope not”. He also did not agree with the notion in certain quarters that PE investors coming to India are debt investors in the guise of seeking minimum guaranteed return.

“The PE industry that comes to India is the same PE industry that operates around the world. In most cases, there are no guaranteed returns. In cases where there are guaranteed returns, it’s part of negotiation. It is two sides who are shaking hands in a situation of guaranteed return. The problem comes when promised exits don’t happen — company is not doing well, IPOs don’t happen and investors get stuck. That’s where there is stress. Indian entrepreneurs are smart enough to realise that. In some cases there are genuine issues and mature investors too understand that,” Memani said.

Most private equity funds channelise funds raised from investors abroad into Indian enterprises and are keen to ensure that promised performances are realised from the Indian side.

“Most Indian entrepreneurs are aware of this and therefore fulfil their side of the deal in most cases. My experience is these PE funds know that there are ups and downs. Almost all of them realise that unless there is inevitability to it, you have to minimise conflict with the entrepreneur. Their endeavour is to partner and bring capital. PEs don’t arm twist the entrepreneurs,” he said.

Memani said that private equity flows — which stood at a record $30 billion in 2018 — could even touch $50 billion this year if the economy delivers and there is stability of policy and discretion in the hands of the taxman is minimised.

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Published on August 05, 2019
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