PRIVATE EQUITY FUNDING
Transcript: HOW DO PE FUNDS WORK? EARLY SUCCESSES Finance: dominated by a few large firms making it difficult for new entrants to compete High legal and capital requirements Construction: Saturated sector Government is the major customer GROWTH PROSPECTS OF PE IN INDIA Private equity refers to a type of investment aimed at gaining significant, or even complete, control of a company in the hopes of earning a high return. Private equity funds invest in assets that either are not owned publicly or that are publicly owned but the private equity buyer plans to take private. The fund would be monitored and evaluated against projected and expected performance. Once the investment objective is met, the exit strategy would be executed. WHO WILL MANAGE THE FUND? Began in the mid 1980's First venture capital funds launched by ICICI and IFCI Commercial Banks started venture capital funds Regional venture capital funds in Andhra Pradesh and Gujarat HOW CAN A PEF WORK IN TRINIDAD AND TOBAGO OTHER STRATEGIES AGRICULTURE WHAT IS PE? HOW CAN A PEF WORK IN TRINIDAD AND TOBAGO Downstream Energy Industry attractive for PE IPO Exit Strategy Challenge of acquiring land, plant and equipment; payback period of the investment would be lengthy Institutional Investors High Net Worth Individuals GROWTH PROSPECTS OF PE IN INDIA 1. Investments are pooled from high net worth individuals and institutional investors, 2. The Fund is either incorporated as a company or a Trust, 3. The Fund may have open-ended or close-ended investments, 4. Managed by an Asset Management Company or Investment/Fund Manager, 5. The Fund typically holds diversified investments to manage risk. 6. Profits are distributed to investors in a pre-determined manner 7. Excess returns are shared between the investors and the Fund Manager. Bharti Airtel - Warbug Pincus deal: - Bharti Airtel received US $292 million from Warbug - Fund enabled Bharti to expand its business from 2 to 23 mobile telecom circles - Warbug Pincus exited by selling off its stake to Vodafone for US $848 million - Warbug secured total gains of around US$ 1.3 billion in the sell-off Attractive for PE as it is underdeveloped and can diversify the economy away from oil and gas dependence. Exit Strategy: sell-off or re-capitalisation HISTORICAL BACKGROUND FACTORS THAT DETERMINE INVESTOR WILLINGNESS TO ENTER PE MARKET EARLY DAYS OF PE IN INDIA STARTING A PRIVATE EQUITY AND VENTURE CAPITAL FUND IN TRINIDAD AND TOBAGO SECTORS FOR PE IN TRINIDAD AND TOBAGO TOURISM Owner cash out Investor buy out Merchant banking Fund of funds CAN PE BE SUCCESSFUL IN TRINIDAD AND TOBAGO Attractive for PE as the Government attempts to incentivise entry into this sector Exit Strategy: Sell-off or re-capitalisation Challenges: family owned farms, seasonal adverse weather conditions and seasonal crops Laws for venture capital funds started taking shape in the mid - 1990's In 1996 the Securities and Exchange Board of India issued the SEBI (Venture Capital Funds) Regulations 2008 Financial Crisis resulted in a slowdown in India's PE industry However, there is currently modest growth and the slowdown is merely a "bump in the road" India remains the 2nd largest Asian recipient of foreign PE after Japan WHO WILL BE THE INVESTORS? Leveraged Buyout (LBO) Growth Capital Mezzanine Capital Venture Capital Shallow Capital Market Small Economy Poor Corporate Governance Family Owned Businesses and Lack of Transparency Lack of Management Expertise GENERAL CHALLENGES IN TRINIDAD AND TOBAGO HAS IS WORKED IN DEVELOPING COUNTRIES AND WILL IT WORK IN TRINIDAD AND TOBAGO? Economic reform by the government in late 80's/early 90's 1995-2000 foreign firms such as Baring PE partners, CDC Capital, Draper International, HSBC Private Equity and Warbug Pincus entered Chris Capital and West Bridge Capital set up with a focus on IT UNFAVOURABLE SECTORS INDIA PE Industry slowed down in 2001-2003 Investment activity revived in 2004 with 6 companies going public PE industry grew from US $2 Billion to US $20 Billion by 2006 PE was the largest investor class driving equity deals in India HOW TO ALLOCATE INVESTMENTS ENERGY WHAT STRATEGIES DO PE INVESTORS USE? IPO Sell-off Re-capitalisation A diverse group of finance specialists, accountants and lawyers with multi-sector experience MONITORING AND EVALUATION OF THE FUND REAL ESTATE DEVELOPMENT Economic Activity Open Market Economy State of Capital Markets Investor Protection and Corporate Governance Regulation Taxation Entrepreneurial Culture and Deal Opportunities Management Expertise Culture Attractive for PE as the Government attempts to incentivise entry into this sector Exit Strategy: IPO, Sell-off to larger manufacturing companies or re-capitalise Challenges: most manufacturing companies in Trinidad are family owned, they may not be willing to part with control or favour transparency. MANUFACTURING GROWTH AND DEVELOPMENT OF PE IN INDIA MOST ATTRACTIVE SECTORS IN INDIA FOR PE Sector diversification Companies should be in
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