Blackstone India in comeback mode, plans 5 exits this year

The new year has brought some cheer to global private equity (PE) giant Blackstone, which has been fighting a long and hard battle in India due to a steady erosion in the valuation of its portfolio companies.

The drought in exits ended last month with the sale of Blackstone-owned Agile Electric, based in Chennai, to Japanese player Igarashi and Indian investment bank MAPE Advisory Group for $106.4 million (Rs 655 crore). The PE major had picked 98 per cent stake in Agile for $53 million in August 2013, giving it an internal rate of return of 55 per cent with a 2X return.

"The Japanese firms' interest in component making space, especially in auto components, gave a real windfall to Blackstone, which gained a 2X return in a short span," said a person who was involved in the deal.

That seems to be just the beginning in a serial exit drive for Blackstone, whose PE business is currently managed by senior managing directors Mathew Cyriac and Amit Dixit.

According to people in the know, Blackstone plans exits from five of its portfolios this year mainly through initial public offerings (IPO). It is in the final process of signing a deal with Baring Asia to sell CMS Info Systems, India's largest cash-management company, in a Rs 1,250-crore transaction. Blackstone, which was holding 57 per cent stake in CMS, will reap a four-times return through this deal. Blackstone had acquired controlling stake in CMS in 2009 for Rs 250 crore.

There's more. Perfumed chemical maker S H Kelkar, where Blackstone holds 33 per cent is filing an IPO soon at a valuation of $500 million. Other portfolio companies such as Hindustan Powerprojects, formerly known as Moser Baer Projects, where Blackstone holds a 36 per cent stake, Nuziveedu Seeds and Gateway Rail Freight (Blackstone owns 49.9 per cent stake) are also in the process of floating IPOs.

For Blackstone, this was the third significant exit from an Indian portfolio firm after Intelenet Global in 2010 and Emcure Pharma in 2013. Blackstone had exited Emcure Pharma by selling off stake to Bain Capital in 2013 through a secondary transaction. It exited Intelenet through a strategic sale in 2010. Blackstone, which invested more than $2 billion in India as PE investments since 2006, made just three exits worth about $800 million so far.

A banker who was involved with Blackstone's deals in India said, "In the recent past, Blackstone's focus in India is more on exits than new investments. Though one among the largest PE firms, Blackstone couldn't make even an average performance in India yet. The boom in IPO market may help them to encash a few of its 5-6 year old investments."

Blackstone India officials refused to comment.

Blackstone India saw a change at the top in December last year when after spending nine years at the helm, Akhil Gupta retired as its non-executive chairman. Gupta had stepped down as its managing director in 2013. During the tenure of Gupta, Blackstone was able to manage the first two exits, while the value of the listed portfolio companies of Blackstone fell drastically. Value of stakes owned by Blackstone in public companies such as Gokaldas Exports, Financial Technologies, Allcargo Logistics and NCC had dropped by 70-80 per cent.

The new helmsmen are anxious as the share prices of the listed portfolios have not yet improved much despite the market rally and Blackstone is yet to recover the losses in companies such as Gokaldas, Monnet Ispat, NCC and FT. Stocks of Gokaldas are bleeding, forcing Blackstone to hold the controlling stake for some more time.

Blackstone has already lost three-fourth of the original investment as the stock has tanked 70-80 per cent. Financial Technologies stock has fallen about 85 per cent in the past couple of months.

The fund, which has invested about $60 million in Allcargo Global Logistics since 2008 and holding a 14.4 per cent stake, has seen an improvement in the latter's share price. It had converted the fully and compulsory convertible debentures of Allcargo in September 2009 at Rs 934 a share. Although there was a stock split, shares of Allcargo touched about Rs 60 a year ago. Currently, the shares are trading at Rs 322 on the BSE.