Heroic effort

Indian sale makes Bain Capital rare buyout hero

Putting private equity money to work in India is easier than getting it out. That's what makes Bain Capital's latest disposal eye-catching. The US firm has sold its remaining $116 million stake in Hero MotoCorp, almost doubling the local-currency value of its four-year investment in the world's largest motorbike maker. Even as buyout groups rush into India, such large clean exits remain rare.

Bain's bet began in 2011, when it invested Rs 2,500 crore, worth around $570 million at the time, in Hero Investments, a private company that owned just under one fifth of listed Hero Honda Motors. The funds helped the founding Munjal family to buy out the Japanese carmaker. Hero Investments was then folded into the listed company, renamed Hero MotoCorp, giving Bain a near nine per cent stake in the group, which is now worth almost $8 billion.

The proceeds of this week's sale combined with the amounts raised from placements in June and November last year, and including dividends, means Bain has doubled its money. The near-50 per cent slump in the value of the rupee over the period of the investment means the return shrinks to about 1.4 times in dollar terms.

Yet, cumulatively the deal still ranks as one of country's largest private equity exits. This year Apax has sold its stake in iGate, an IT outsourcer, while TPG Capital offloaded its stake in financial services group Shriram City to Apax in a secondary sale. In total, private equity firms have raised $6.9 billion from exits in India in the first nine months of this year, according to PricewaterhouseCoopers.

Yet, the new sums that private equity firms are deploying in India far outweigh the amounts that are being returned to investors. In total, McKinsey reckons $75 billion of dollars invested between 2001 and 2013 remains stuck.

The biggest bets this past year have been in e-commerce sector. A stronger market for initial public offerings is probably a pre-requisite for these to be successful. Bain's big sale is a reminder of the delicate conditions that private equity groups need to achieve a heroic exit from India.