Carlyle staying patient with $2.5 billion fund in India

Private equity firm Carlyle Group is satisfied so far with deals for minority stakes in Indian companies, despite the boom in private equity deals in India at the moment, according to Reuters. India saw $6.57 billion invested in the first three quarters of 2010, twice the $2.5 billion invested for the same period last year. Carlyle, though, is happy to sit on the sidelines and wait for the right deal, according to Devinijt Singh, a managing director at the firm.

(Reuters) – U.S. private equity giant Carlyle Group [CYL.UL] is betting patience will be rewarded in an Indian market where global players have had to content themselves almost exclusively with deals for minority stakes.

India’s family-run and entrepreneur-driven firms have long been reluctant to sell out, preferring instead to raise money by going public or through bank borrowings. Private equity firms have adapted their strategies by providing growth capital or investing in companies that are already listed.

“We don’t have a ‘runs on the board’ approach. We are quite happy to sit on the sidelines and wait for the right deal,” said Devinjit Singh, a managing director at Carlyle.

“And if we get the right deal, we go hard after it and are willing to put substantial capital behind it,” he told Reuters in an interview.

Carlyle’s biggest India investment since setting up office in 2005 is for 5.6 percent of Housing Development Finance Corp, India’s top mortgage bank. Carlyle paid roughly $650 million in 2007 for a stake in the listed lender that is now worth roughly double that, at $1.37 billion.

Beyond that, Washington-based Carlyle has bought stakes in a handful of smaller Indian firms through growth funds, a strategy it will continue to pursue alongside its hunt for bigger targets.

The firm’s $2.55 billion Carlyle Asia Partners III fund closed in April.

“We hope to deploy a sizeable amount of capital in the market. We have a $2.5 billion fund which still has a lot of dry powder,” said Singh, who joined Carlyle in 2008 from Citigroup, where he had headed M&A for India.

Private equity activity is surging in India, with $6.57 billion invested in the first three quarters of 2010, more than double the $2.5 billion invested during the same period last year, according to Venture Intelligence, a research firm.

A mainly foreign fund inflows-led rally has pushed the benchmark Indian stock index <.BSESN> to 33-month highs this week. It has been accompanied by a rise in valuation expectations in private equity deals, industry insiders have said.

Buyouts in India are rare, however, with just six such deals this year worth a combined $84 million, according to Venture Intelligence. Private equity buyouts are also scarce in China.

“We think over the next one or two years a buyout market will emerge,” Singh said.

Opportunities for full buyouts in India will be driven by generational succession in family businesses, a preference among some entrepreneurs to exit companies instead of diluting their stakes by raising capital, and a consolidation of focus within India’s diversified conglomerates, he said.

“Some of the mainline businesses within the conglomerates have become so big,” he said at Carlyle’s offices in suburban Mumbai. “The logic for divesting them is a lot more compelling. Whether they do it or not, no one is holding their breath.”

He said preferred sectors include domestic consumption plays, infrastructure and information technology.

An Indian economy growing at 8.5 percent a year and an expanding middle class has made companies positioned to benefit from rising spending power in the world’s second-most populous country especially sought after. (By Indulal P.M. and Tony Munroe. Editing by Malini Menon)