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BW Businessworld

'Rajat Was Not Directly Involved'

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Misfortune has stalked New Silk Route Partners (NSR) from birth. Shortly after being founded in 2007, the Mumbai-based private equity (PE) firm lost star recruit Amit Chandra (former country head of DSP Merrill Lynch) to Bain Capital. The following year US financial services giant Lehman Brothers, which had committed $125 million to NSR's debut $1.4-billion fund, went belly up. Soon after, television broadcast firm INX Media, the PE firm's first deal, saw the founders Peter and Indrani Mukerjea quit in a huff. The biggest blow came early this year. NSR co-founder Rajat Gupta, former CEO of McKinsey & Co, had to step down when the US Securities & Exchange Commission (SEC) charged him for insider trading in conspiracy with hedge fund Galleon Group. While Gupta's travails continue, co-founder Parag Saxena, a PE veteran with over 300 investments globally, tells BW's Snigdha Sengupta what NSR is doing to cast off the shadow of its troubled past.

Edited excerpts:

How did you initially react to the SEC charges against Rajat Gupta?
We did two things at the time. I knew that if I were a limited partner (institutions that invest in PE funds), I would want quick dissemination of information. I learnt from Rajat that the SEC was going to charge him 12-16 hours before they did. I started making telephone calls to limited partners. I happened to be in India and had the time zone benefit. About 20 per cent of our investors are in the Middle East and 40 per cent each in Europe and the US. I systematically went through time zones ending in California. Rajat decided to go on a leave of absence and remove himself from all management affairs at NSR.

How involved was he on a day-to-day basis?
Rajat did not have a lot of direct responsibility. Not that he was super-fluous. But he was not on any of the boards of our companies. What he brought to the table was 35 years of thinking strategically about companies and a great global Rolodex. One of the things he did was to work with the individuals at the firm, and make sure we had people-related processes.

How many of your 14 deals originated from him?
There were deals that Rajat brought to the table, but it just sort of happened that none of them got consummated.

New Silk Route Partners
Established: 2007
Founders: Rajat Gupta, Parag Saxena
Headquarters: Mumbai, India
Business: Private equity, growth capital
Funds under management: $1.4 billion
Investments: 14
Key deals: Coffee Day Resorts, Ascend, Beaconhouse

What are you doing to plug the gaps created by his departure?
One of the things that we are doing right now is closing in on an advisory board. We've got a bunch of portfolio companies coming up for exits (when PE firms sell their stakes in investee companies to book profits) in the next 24-36 months. So we're looking at people who can help us make the maximum improvement in those companies and introduce us to capital markets around the world. On the investing side, we haven't really felt a lag partly because there are ten other partners at the firm.

What will be the constitution of this board?
We plan to have at least three and maybe as many as 6-7 people. They should each be able to give us 30-40 days a year, which is 7-10 days in a quarter. There would be a couple of people from India, someone from industry and someone from finance. In Europe and the US, I would like to get somebody who is European with a combi-nation of industry and finance experience. Then I need somebody who is a supranational. This would be somebody from an organisation such as the IMF, the World Bank or IFC. Their relationships and values are different and I would like to get that sort of perspective.

You've had a couple of problems in the portfolio. What's the status there?
So we have one problem company, KS Oils (the edible oils producer is reportedly facing losses of Rs 400 crore). Somewhere along the way there was one piece of homework that we didn't do or it was so cleverly hidden that we couldn't uncover it. We did the usual due diligence and the accounting was fraudulent in the end. We don't know all the numbers yet. NSR partner Vivek Sett
has resigned from the company's board.

They have said they need to redo accounts. We need to see what those accounts are and whether we believe them.

You didn't think INX Media was a problem?
But a problem that we fixed! The entity that we invested in had three parts. There was an entertainment channel, a news channel and a music channel. When we began, we owned 20 per cent of this entity and we put in $40-44 million. Everybody (other PE co-investors) gave up on the company. They sold off the news division, closed the entertainment channel and didn't know what to do with the music channel. We brought in Pradeep Guha (former CEO of Zee Network) as a consultant and embarked on a plan to focus on the smallest piece of the business, music. Nobody else liked the plan. So we bought out virtually all the other shareholders, Pradeep put in some money and we now own about 80 per cent. We now have a company that is worth more than the money that we put in.

There is a talk of a new fund in 2013. How much of Fund I has been invested so far?
We've invested $750 million, including some follow-on commitments to existing portfolio companies. In terms of a new fund, 2013 sounds rights. But we need to have two conditions. The current has to be invested and we need some exits. By 2013, we should have two maybe three exits.

Which are the likely big exits from the current portfolio?
If the capital markets open up Ortel Communications (the Bhubaneswar-based cable television services provider
had filed an draft red herring prospectus) should exit. We should have some outcome with Ascend Telecom Infrastructure (telecom towers). Destimoney (retail financial services) is a very attractive company on the housing loans side. We've invested $92 million and it's a candidate. Coffee Day Resorts, which owns the Café Coffee Day franchise, could go public today.

(This story was published in Businessworld Issue Dated 14-11-2011)