Monday, March 10, 2008

Sovereign Wealth Funds Come Under Scanner

India has joined the global debat on Sovereign Wealth Funds (SWFs).
As a first step, the finance ministry is going to come up with a common working definition of such funds and identify their Indian holdings, said a senior official in the ministry who did not want to be named.
The issue contested is motive. Profit versus Strategic motives for investing. Loose governance standards can mean an individual's money moves in & out of SWFs while state owned firms can acquire stake in rival firms/countries for strategic objectives.

SWFs have existed for about 50 years, but it is their recent growth in size that has triggered concerns. According to the International Monetary Fund (IMF), SWFs’ sizes are likely to grow threefold over the next five years to $6-10 trillion. The recent growth in SWFs is being driven by foreign exchange surpluses generated by some countries on account of historic highs in oil prices and trade surpluses.

Australia recently became the first developed country to officially articulate a set of principles to be applied to scrutinize SWF investments. IMF has been asked by to come with proposals for a voluntary set of best practices in management of SWFs. Some countries with SWFs such as Singapore, operating through Temasek Holdings and Government Investment Corp., are open to following an IMF code to prevent a political backlash, the economist said. It is China’s aims which have many countries worried, said the finance ministry official. China, for its part, has been reluctant to submit to governance practices pushed by external agencies.
For full article please follow Mint

Spanish BBVA to enter India through PSB JV

Spanish financial services group BBVA SA has identified India as one of its key markets in Asia and plans to enter the country through a joint venture with a public sector bank (PSB).
The roadmap over next three-four years involves a mutual funds venture followed by projects in consumer finance, credit cards and later, life insurance.

BBVA’s Asia general manager Manuel Galatas said that BBVA plans to enter MF market through a JV with a PSU Bank. They are talking with two PSB. It is believed that the two PSBs are Bank of India & Corporation Bank.


Some time ago BBVA was in talks with Union Bank of India for a mutual funds joint venture, but it is now understood that the Union Bank has zeroed in on Belgium’s KBC Group NV as its partner for its mutual funds business.


BBVA with a market capitalization of €53 billion (Rs3.2 trillion) and more than 8,000 branches worldwide, is also open to acquisitions of mid-sized banks here, when the regulatory environment permits. The Spanish company entered India in April last year with a liaison office in Mumbai.

For full article read Mint

VC Funds: The Problem Of Plenty

It's long been suspected, the problem of plenty. But now it seems real. India is flush with VC funds but not enough worthy enterpreneurs. This, according to Sramana Mitra at Forbes.
Saramana is an MIT educated Silicon Valley serial enterpreneur & strategy writer. In her commentary on Indian VC space at Forbes she makes following observations.

In 2007, 50 new VC firms were added taking the total to 500, ready to fund close to $1 Bn.

According to her, the tech. enterpreneur's natural instinct to build outsourcing companies is a by product of lack of understanding of how global technology markets work. Hence BPO, Software Services & Chip Design etc., each takes less capital & begins generating revenue shortly making VC capital redundant. It further has few entry barriers. However it's the only available model in Tech VC space & has returned money hence a common investment thesis.

That nearly $1 billion of venture money, however, has been seeking other opportunities. That's made consumer Internet and mobile offerings the next stopping point; India's growing mass of connected consumer population is the target wallet. Travel, matrimonials, jobs, games and mobile payments are all segments getting substantial capital infusion. The engineering or product marketing required in building these sites is marginal, brand marketing being the big differentiator--something the Indians know how to do.

But consumer Internet alone cannot exhaust the available capital, so those who understand the subtleties of these dynamics have started diversifying their portfolios with retail, real estate and hotels. In 2005, Oak Investment Partners announced a $200 million venture fund to focus on the retail boom in India. Veteran Retail investor Jerry Gallagher india visit & a look at revenue per sq. ft at malls & stores prompted him to convince his partners to commit capital to retail.

That apart, with "Product Driven" companies absent, large available funds & not enough avenues in the traditional space, VC funds are moving to areas, where competition already exists. Retail, Real Estate, Bio-Tech, Hospitality each has bigger players making VC presence unwelcome. Add to that increasing thrust from government in creating VC funds catering to SME (read previous post) and we are facing the problem of plenty.

SIDBI Finanancial Inclusion 2000 Cr. Package

SIDBI will roll out new equity scheme for SME through Rs.2000 Cr. risk capital fund announced in budget.
Besides the funds allocated in the Budget, SIDBI will seek participation of private equity players and venture capitalists for injecting risk-bearing equity capital into small and medium enterprises (MSME), the bank's Deputy Managing Director Rakesh Rewari said.
This 2000 Cr. fund is in addition to another Rs.2000 Cr. fund set aside for refinancing to MSME.

"Equity financing is very low in the MSME sector. Of the total finance raised by small firms, only five per cent is contributed towards equity and the rest 95 per cent is in the form of debt," Additional Secretary in the MSME Ministry Jawahar Sircar said. The large industries, on the other hand, manage to meet 45 per cent of their fund requirement in the form of equity, he said.

Earlier this week, SIDBI Venture CEO A K Jaipur said at an MS ME seminar here that availability of equity capital can be increased by promoting more Angel Clubs in the country. "Angel clubs have limited presence in India. There are more than 2,500 in the US compared to only a handful in India," he had said.
Read the full article on Financial Express