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Blackstone last week completed its fifth deal in India in two years, underscoring the appetite among private equity firms for investments in Asia’s second-fastest growing large economy.
Blackstone will pay $150m for a 12.5 per cent stake in Hyderabad-based Nagarjuna Construction in one of the biggest foreign investments in a domestic construction company.
Akhil Gupta, chairman and managing director of Blackstone Advisors India, told the Financial Times: “In an industry that is growing at 25 per cent, Nagarjuna has been growing 60 per cent a year over the past three years.”
The transaction closed only days after Blackstone announced it would take a majority stake in Gokaldas Exports, one of India’s largest garment companies, in a deal worth up to $165m.
While the number of private equity deals in India is growing, they tend to be limited in size and those such as Gokaldas, in which the owners are willing to surrender control, are rare.
There are also signs that the sector may be slowing following the subprime market shock, with the volume of deals dipping in August, according to Thomson Financial, the data company.
In the first eight months of this year, Australia and India were the most active nations for private equity in the Asia-Pacific, excluding Japan, with a combined regional market share of 59.8 per cent, Thomson said.
Australia reported deals worth $18.2bn, up from $14.1bn in 2006, while India’s tally reached $9.5bn, up from $2.3bn last year.
Thomson said that private equity deals accounted for 89.6 per cent of total mergers and acquisitions in India in July, the highest proportion yet recorded, but collapsed to 7.6 per cent in August.
Mr Gupta said Nagarjuna’s expertise in infrastructure construction fitted with Blackstone’s belief in the potential of the sector.
The government has prioritised infrastructure, with Palaniappan Chidambaram, finance minister, last month estimating India will need to invest $475bn in this area by 2012, up from a previous official forecast of $320bn.
Blackstone is already investing $250m into a proposed $5bn Indian infrastructure fund alongside Citigroup and domestic firms, Infrastructure Development Finance Corporation and India Infrastructure Finance Company.
Founded in 1978 by Indian businessmen AVS Raju and today led by his son, A Ranga Raju, Nagarjuna is the third-largest construction services company in India and through its subsidiaries owns several infrastructure assets on a build-operate-transfer basis.
Its construction services business operates in the road, water, buildings, electrical works and irrigation segments, and has expanded into the power, oil and gas, and metals segments.
Mr Gupta said that through the Gokaldas acquisition, Blackstone hoped to capture what he expected would be an increase in India’s market share of the textile industry as customers sought to diversify their exposure from China.
“India’s market share is nowhere near that of China, despite the fact India and China both have the advantage of a large labour pool.”
Under the Gokaldas deal, Blackstone is paying $116m for an initial 50.1 per cent stake and is setting aside another $49m for a tender offer for an additional 20 per cent of the company.
In June, Blackstone bought an 80 per cent stake in outsourcing firm Intelenet Global Services, for $200m.