Carlyle in second-largest India exit of the year

Already this year, General Atlantic and Oak Hill Capital Partners have sold their 30% stake in business process outsourcing firm Genpact to Bain Capital for $1 billion, while Temasek Holdings and Warburg Pincus completed sell-downs of ICICI Bank and Kotak Mahindra Bank, respectively.

Carlyle was also involved in that flurry of financial sector activity in February, jettisoning one quarter of what was then a 5.2% holding in HDFC via the public market and raising $270 million. On that occasion, the shares were priced at INR676.90-697.85.

The PE firm secured its full exit through block trades priced at INR760-781 per share, although a source familiar with the situation tells AVCJ that the transaction slipped towards the lower end of the range, representing a 3.4% discount on Thursday's closing price of INR789.05.

Carlyle's involvement with HDFC can be traced back to 2007, when it purchased 15.25 million new shares through a preferential allotment for INR26 billion ($533 million). In August 2010, the shares were split 1:5. During the five-year holding period, the mortgage lender's net profit increased 70% to INR41 billion in the most recent financial year.

"The investment was channeled through Carlyle Asia Partners II five years ago at INR346 apiece. The exit - including the February's sale - therefore represents a money multiple of around 2x," the source says. "This has been one of the largest and most successful private equity investments performed by Carlyle in India."

The exit came one day after India's benchmark Sensex Index hit a 15-month high in response to the Indian government announcing a series of reforms designed to attract more foreign direct investments in the insurance and pension sector. Carlyle's shares were picked by 40-50 investors, most of them long-term overseas institutional players.

"Following the announcement, financial institutions have gained a bit of confidence and once again started to invest in the market," says VikramUtamsingh, executive director and head of private equity at KPMG India. "Private equity players can make good use of this opportunity to sell their stakes as the market moves up, if this continues for some time."

As of the first week of October, four of the five largest India exits this year came via open-market sales of minority stakes. Given this context, Utamsingh is not optimistic for investors seeking to offload larger interests.

"If you hold a small stake in a public company, you can exit through the market when it moves up even for a short while. If you hold a larger stake, say 10% or more, it's difficult," Utamsingh says. "The general exit environment in India, and the IPO market in particular, is still very tough."

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• Topics
• Exits
• Southeast Asia
• Financials
• India
• The Carlyle Group
• Financial Services
• Sell down
• Exit