India Infoline by 387BA9V

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									Private equity majors have been riding high on India's consumption story and sectors like banking, financial services
and insurance (BFSI) which are seen as proxy plays. After making a two-fold return on HDFC, it came as no surprise
when global PE giant Carlyle increased its exposure to South Indian Bank (SIB) by participating in its fund-raising
exercise.

Carlyle acquired 1.56 per cent stake in SIB for Rs 60 crore ($11 million) through its qualified institutional placement
(QIP) earlier this week. With this, Carlyle has raised its total stake in the bank to 4.72 per cent and its total investment
to about Rs 160 crore. The additional stake was acquired by Carlyle’s growth fund, First Carlyle Ventures.

SIB sold 15 per cent stake to raise Rs 443 crore, which also saw Renuka Ramnath-led Multiples Alternate Asset
Management acquire a stake of about five per cent. In February, Carlyle India, through a partial exit from mortgage
lender Housing Development Finance Corporation (HDFC), doubled its return on its 2007 investment in the company.
In May 2007, Carlyle Asia Partners, Carlyle’s buyout fund, had invested about Rs 2,638 crore in HDFC, acquiring
15.25 million shares at Rs 1,730 a share. In August 2010, the shares were split 1:5. Carlyle, which held 5.22 per
stake in HDFC, sold about 1.3 per cent stake and recorded a return of Rs 1,354 crore from the deal.

Shankar Narayanan, managing director, The Carlyle Group, said, “The Indian BFSI sector is attractive to long-term
investors like us. Currently, the BFSI segment, a direct beneficiary of India’s growth, has low penetration, is a proxy
play on the consumption demand in India and is a well-regulated sector.”

Sanjeev Krishan, executive director at PricewaterhouseCoopers, said, “PE firms would continue to be cautious
investors in the Indian banking industry. While moderate valuations may be a reason, they would focus on the
profitability track record and asset quality, including the quantum of restructured assets and non-performing asset
levels of the banks before investing.”

Experts say the investment in SIB is a good bet for Carlyle, as the bank’s gross non-performing asset (NPA) ratio is
the lowest among its peers. SIB’s net NPA ratio is 0.28 per cent, compared with an industry average of 1.5 per cent.

Currently, the bank’s revenue is Rs 65,000 crore.

“Another important factor is the impact on the banking sector by the slowdown in India’s gross domestic product
growth, which may not have been completely factored into the performance of Indian banks yet,” Krishnan said.

INVESTMENTS BY CARLYLE IN BFSI
Year            Company                                  Investment ($mn)          % Stake
2012            South Indian Bank                                       10.81          2.00
2011            Edelweiss Financial Svs                                 23.72          5.47
2011            India Infoline                                          17.70          9.00
2010            Star Health & Allied Insurance                              -              -
2007            Repco Home Finance                                      27.43         49.89
2007            HDFC                                                   650.00          3.87
BFSI: Banking, financial services & insurance             Source: VCCedge


Carlyle has also strengthened its presence in leading Indian financial institutions. Carlyle Mauritius Investment
Advisors, a company arm, currently holds about 9.95 per cent stake in India Infoline and is the largest public
shareholder in the company. Another subsidiary, First Carlyle Ventures, holds 5.6 per cent stake in Edelweiss
Financial Services.

According to a recent Bain & Company survey on the Indian PE industry, after consumer products, the BFSI space,
too, is likely to attract a lot of PE interest. “Market fluctuations give a right opportunity for long-term PE investors to
strengthen their presence in BFSI portfolios,” said a partner at a Mumbai-based PE firm.
Like Carlyle, PE major Warburg Pincus had also made a hefty return through its exit from Kotak Mahindra Bank. In
March this year, Warburg sold the residual 3.6 per cent stake in Kotak Mahindra Bank for Rs 1404 crore (Rs 530 per
share). In February, it had sold another 2.4 per cent stake (Rs 490 per share) in the bank for Rs 857 crore. Warburg
had acquired about 2.75 per cent stake in Kotak Mahindra Bank at the rate of Rs 230 per share in November 2004,
by investing about Rs 80 crore.

								
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