A uniform set of rules important for business: Parag Saxena

Interview with CEO, New Silk Route

New Silk Route Partners is an India-focused private equity (PE) firm, with a fund size of $1.4 billion under management. Parag Saxena , founding general partner and CEO, has served on committees advising the Prime Minister on foreign direct investments and venture capital for the Planning Commission. A Wharton School graduate, he speaks to Reghu Balakrishnan on regulatory aspects and concerns of PE funders. Edited excerpts:

Are PE managers getting stuck on lack of exit routes?
A good PE manager should be able to find the right way to extract value from the situation. If you can’t find the market for an exit, you have to find, maybe, a strategic buyer here or elsewhere. You have to find if your company can get listed somewhere else. They’ll find low valuations but a way to get out of companies even in the domestic markets. Because maybe you can’t do something at a 15-times earnings; you can do it at a 12-times earnings. That’s the job, why you’re getting paid.

Is a 16- 17 per cent IRR the best way to get out?
About 16-17 per cent IRR (internal rate of return) in a long term is an excellent one. I have been investing in the business for 30 years. Very few people get a long-term 16-17 per cent IRR. That much will put you in the top 20 per cent of all investors; it’s an excellent return. I am hoping to be in that bracket in exiting.

You’ve had some bitter experiences, like investments in KS Oils.
At this point in time, it’s an issue of unclear accounting. We still don’t know all the answers to the questions we want. There are a lot of instances of unclear accounting. That’s one of the things that is to get better over time, if we are going to attract capital. Effectively, it means from a policy standpoint that greater enforcement has to take place.

Is the government supportive of PE industry growth?
I don’t think the industry needs support. What it needs is no obstacle. We don’t have a PE industry in India because we don’t do leveraged transactions. So, classic PE transactions actually don’t exist here. But all we need is for the government not to be in the way. To make it possible and to do transactions easily, we need to have uniform regulations.

Does the government realise the value of PE in India?
I don’t know the answer to that. I sat on a committee once that looked at rules and regulations, did some work for the Planning Commission, maybe four to five years ago. There was a group of us who worked on that and made some recommendations. So, it’s definitely on the radar screen but the question is how high up it is, that’s what matters.

The measures needed for Indian PE.
In principle, it’s a bad thing for government to get involved in the pricing of deals. There is no simple tax structure, not permitting hybrid transactions, such as debt and equity or preferred stock and common stock, not commending various terms. The government has a very good reason to not do many of these things because they are trying to prevent money laundering or trying to prevent tax evasion. But what’s important for business is a uniform set of rules. If you have that, a businessman will find a way to operate and deliver service efficiently.

However, discipline is needed in the industry itself.
True. It should be exercised by the people who give them money. Investors, in the end, have to exercise that discipline. Investors have to decide, who is experienced, who brings investment experience, operating experience, whatever it is that you need.

On foreign investors concern at performance by the Indian PE market.
If the economy keeps growing at 6.5-8 per cent and if the underlying companies in that economy keep growing at 15-25 per cent in earnings per share, you can’t ignore that economy. So, investors will definitely come back.