Q&A: Anil Chawla, DE Shaw India Advisory Services

'Uncertainties can present some interesting investment opportunities'

US-based DE Shaw, a private equity and hedge fund, shot to the limelight this year after entering into an agreement with Reliance Industries to foray into financial services. It has seen battles with promoters of a few companies in which it has invested. Anil Chawla, managing director, DE Shaw India Advisory Services, speaks to Surajeet Das Gupta on the challenges. Edited excerpts:

What is the status of your dispute with Amar Ujala, where you have invested money? It seems there was an attempt to curtail your management powers, after which the matter went to court?
The DE Shaw group affiliate holding the investment in Amar Ujala has commenced proceedings to enforce its rights in accordance with law. These matters are pending before the courts and the Company Law Board, and I'd prefer to refrain from commenting on it.

There have been newspaper reports about investigations by the enforcement directorate and Reserve Bank of India against the DE Shaw group. The allegation is that a company entered into a fixed return arrangement with you, which is not allowed.
To date, the DE Shaw group has not been approached by the ED or RBI for any investigation into any transaction involving the group. All investments made by the Shaw group in Indian companies have been in strict compliance with all applicable norms of India’s foreign direct investment regime.

Will the DE Shaw group versus Amar Ujala issue be a deterrent for your future investments in India? Will you go slow?
Absolutely not. The DE Shaw group is firmly committed to partnering with top Indian entrepreneurs and businesses, and helping them script the Indian growth story. These disputes are unfortunate. However, one ought to be wary of drawing negative inferences about the Indian investment environment, based on one or two isolated experiences. There are many top-class promoters out there, with high standards of integrity,with whom we have associated, and we look forward to continuing to partner with top Indian firms.

Do you expect this issue to impact the outlook of foreign investors towards India?
Such incidents are certainly not helpful to the India investment story. I expect a lot of foreign investors are watching this situation carefully. Unfortunate as it may be, my concern is that for many foreign investors, this may reinforce their perception of India as a jurisdiction where enforcement of contractual rights is very difficult, particularly in a reasonable timeframe. I don’t personally agree with this perception and have full faith in our judicial system, given my vast prior working experience in India. An expeditious resolution through the legal process will make foreign investors more confident about investing in India.

What are the key investments you have made in India so far?
We have made equity investments in a wide gamut of sectors — education, renewable energy, real estate, publication, animation, broadcasting, outsourcing, security services and more. We have had some successful exits and are excited about the future. Some of our current investee companies have outperformed the competition on growth and profitability. We are hopeful that a few of them will soon announce plans to list their securities on the public bourses.

What investments have you planned for the next year?
We expect hospitals, renewable energy, agro processing industries and education to continue to witness higher than average growth. We believe there is a lot of scope for private equity investments in these sectors.

You have entered into a joint venture with Reliance. What would this entail? What will be the initial focus and when will it be operational?
The DE Shaw group and Reliance see huge potential for innovation in the financial services market in India. We want to be a considerable player here and want to be at the top. In the first phase, the JV will, among other things, leverage its expertise in technology and asset management to work with institutional and corporate clients.

Will you look at acquisition in financial services to grow the JV? Are you eyeing IL&FS and JM for a possible strategic equity stake?
The JV is still in its early stages and has a long way to go. We are not ruling out inorganic growth options but at this juncture, we are not in a position to comment on specific market rumours.

What is your view on the current investment scenario and impact of the European crisis on foreign investment in India?
The European crisis is definitely an overhang on the global investment sentiment.

Europe is the biggest investor in the emerging markets and these investments could be hit the hardest if there is a flight of capital back to Europe. Indian markets are trying to find the right level but, unfortunately, we will continue to see high volatility for some time.

The quantum of the impact from the European crisis and the global slowdown is the biggest unknown.

But, such uncertainty can also present interesting investment opportunities for firms with long-term horizons.