Blackstone downbeat on India prospects

Akhil Gupta, chairman of Blackstone's Indian unit, told Bloomberg that the current environment - where economic growth is down to the slowest pace in a decade, with higher inflation, higher interest rates, low profitability and lower stock prices - is reason for his pessimistic outlook.

"One doesn't see a way out. I haven't ever seen such pessimism when we talk to Indian company or government officials," he said.

According to AVCJ Research, PE investment in India came to $7.1 billion in 2012, down 23% year-on-year and the lowest annual total since 2009. However, 2013 has started more brightly, with $5.3 billion committed in the first seven months alone.

Blackstone has invested about $2.9 billion in India, with about a third of the total in real estate.

Its 2010 investment of $60 million into independent power producer Monnet Power has been affected by fuel-supply bottlenecks and mining restrictions due to environmental concerns.

ArcelorMittal and Posco this month scrapped $12 billion of proposed steel projects in India as land acquisition delays and slowing demand for the alloy diminished their viability.

In another example of policy problems, Gujarat Urja Vikas Nigam, the state-run bulk buyer of solar power, submitted a petition to the regulator this month requesting a 28% cut in the rate it pays for electricity from solar plants, despite the 25-year power purchase agreements it signed with energy developers in 2010.

The petition seeks to lower the average megawatt-hour price to INR9,000 ($152) from INR12,540 for projects comprising 857 MW of capacity. Blackstone portfolio company Moser Baer Projects and Vinod Khosla-backed SunBorne Energy Holdings are among more than 80 developers that may be impacted.

Blackstone might also have trouble getting returns out of the $82 million invested in Allcargo, a shipping and container freight logistics services provider. It paid INR934 per share in 2008, but the stock is now trading at around INR66. Allcargo expected the government to spend $500 billion on building ports and airports between 2012 and 2017 to boost trade.

The weakness of the rupee is another factor working against investment. The currency, which has set new records for all-time lows over the past year, has fallen by around 52% since hitting a multiyear high in late 2007. The corresponding decline in dollar value makes it more difficult to sell out of investments with a profit.

"For a strategic player with a long-term view of 30-year horizon, it's a great time to come to the country," Gupta said. "For a PE investor, it is difficult as you don't know what's going to happen. If growth doesn't take place in two to three years, whole returns will be eaten away."

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