Private equity set to extend India surge in 2016 as debt-laden firms offload assets

By Karen Rebelo

MUMBAI (Reuters) - Continued asset sales by India's most indebted firms should help private equity players notch up a bumper 2016 in Asia's third-largest economy, with more and larger deals sealing a revival begun with record investments this year.

Private equity purchases are set to reach a new high of $10.89 billion this year, surpassing the high water mark set in 2007, according to Thomson Reuters data. In 2014, private equity investments totalled just $6 billion.

Financial industry insiders expect that momentum to continue into 2016, as renewed interest among private equity buyers feeds higher valuations. Among potential deals, GVK Group is considering selling 49 percent of unit GVK Airport Developers to private equity players for around $600 million.

"You will see other transactions also coming into the markets as result of stress where certain assets are hived off," said Vikram Utamsingh, co-head of adviser Alvarez & Marsal's India operations. He added deals were also looking larger.

"The size of transactions that we saw this year was just larger than the previous year," Utamsingh said.

While 2015 investments included Blackstone's purchase of the Indian unit of British outsourcing firm Serco for 250 million pounds ($372 million), India has so far been a "$20-23 million average ticket-size market", according to Utamsingh.

Debt-burdened groups like Indian infrastructure company GMR Group are likely to benefit as private equity interest grows. GMR expects to raise at least $1 billion over the next two years, partly by selling stakes in its airports and energy businesses.

Earlier this month, indebted Reliance Communications agreed to sell its mobile phone masts business to U.S. buyout firm TPG Capital Management. The sale is expected to close in January, easing Reliance's $5.8 billion debt burden.

Key sectors include those which depend on consumer demand, including consumer credit, rosier in India even as some larger sectors drag.

GE Capital is looking to sell a 40 percent stake in credit card provider SBI Cards & Payments Services for around $300 million, according to Indian media reports in September. The sale would be in line with GE's global strategy, a GE spokeswoman said at the time.

Private equity firms are expected to place bids for the stake next month, according to one source familiar with the process.

The bolder bets mark a resurgence after deals slowed following the 2007 global financial crisis - fuelled in part by India's tentative economic recovery.

"Globally, private equity is sold on healthcare, financial services, consumer and IT-tech," said Amitabh Malhotra, managing director at Rothschild India. "Most of them are seen as proxies for gross domestic product growth."

India's government targets economic growth of 7 to 7.5 percent next year, making it one of the world's fastest-growing economies, even after a recent downgrade.

($1 = 66.3750 Indian rupees)

($1 = 0.6715 pounds)

(Editing by Kenneth Maxwell)