PE funds set to make three-times return

Home-grown Gaja Capital was the first private equity (PE) fund to back RBL Bank in February 2010. Now, there are 17 PE funds backing the regional bank, reflecting one of the highest numbers of PE funds staying invested in a firm going for an initial public offering (IPO).

But, with most of these 17 funds being invested for less than five years, the list of PE funds using IPO for exit is comparatively small.

Gaja Capital, which is invested through its funds GPE (India) and co-investors Capvent and Elephant India, will make over three times returns by partly selling in the IPO that opens on August 19. A share of RBL Bank will be priced at Rs 225 at the upper band. This is against an average cost of Rs 73.71 a share purchased by GPE (India). It would give it over 20 per cent of internal rate of return.

Another PE fund, Beacon, which first invested in January 2011, will also be making an exit through the IPO with over 3.4 times return. "The selling PE funds had invested over five years ago, which is considered the higher end of a typical holding period for a fund. So, it is not surprising that they are selling as part of the IPO to showcase a good exit to their investors," said Arun Natarajan, founder of Venture Intelligence.

But, other PE funds who invested along with Beacon in 2011, including Faering Capital, Cartica Capital, Samara Capital, Norwest Venture Partners, have decided to stay put.

"The fact that the remaining PE investors in the company, who had entered since 2011, are staying invested is a good sign of their confidence in the post-IPO prospects of the bank," he added. IFC, Asia Capital & Advisors, Aditya Birla PE, Ascent Capital, TVS Capital, IDFC Investments Advisors are also invested in the bank. Most recently, the bank had raised Rs 488 crore ($74 million) in pre-IPO placement with Asian Development Bank and CDC Group late last year.

In 2010, Vishwavir Ahuja joined RBL Bank moving from Bank of America as its country manager in India. "The management change brought a lot of confidence to PE investors who grew since then," said Sanjiv Bhasin, executive vice-president of domestic brokerage IIFL. "The way rural financing business is improving, these investors will benefit with staying longer with the bank," he added.

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