CLSA Capital picks an Indian bride

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The pace at which private growth capital is entering the Indian water sector has been increasing dramatically. A new equity commitment by CLSA reinforces the trend.

CLSA Capital Partners’ Clean Resources Growth Fund has acquired a 20% stake in India’s Earth Water Group (EWG) for $15 million – its first in the country’s water sector.

The two main businesses of EWG are Fontus – an industrial wastewater treatment company – and Aventura, an equipment supply company. In addition, EWG owns Everything About Water, an information and marketing entity, creating what Peter Kennedy, managing director of CRGF, calls a “mini ecosystem within the water industry” that offers built-in diversity.

“The core companies are in the top quartile of Indian pure-play water companies and are generating revenue growth of 40-50% a year,” Kennedy told GWI. CRGF’s investment will go towards building out the existing companies’ businesses, and to fund further acquisitions in the sector within India, and potentially elsewhere in Asia. The fund will be looking for an exit after 3-5 years, most likely through a trade sale but possibly through IPO.

CRGF has been looking for a suitable target in the Indian water sector for several years, jostling for position in a market crowded with big industrial houses dabbling in water, and small water solutions and technology companies which tend not to want to give up equity.

The pace at which private growth capital has been pumped into the Indian water sector has increased dramatically over the past couple of years (see table), with the International Finance Corporation having made a number of equity and debt commitments, the largest of which – a $24 million equity/quasi-equity investment in industrial water service provider Doshion – is due to be signed off imminently.

The $150 million CRGF fund has made four investments so far, and is focused on the water and sustainable agriculture markets.

Just days after the EWG announcement, CLSA participated in a follow-on investment in Norwegian desalter Aqualyng as part of a larger $31.4 million funding round which also featured the IFC. CRGF put $8 million into Aqualyng in 2010 and played a hand in bringing them together with Beijing Enterprises Water Group for the Caofeidian desalination project. Kennedy believes that Aqualyng still has strong growth prospects in the Chinese market thanks to the energy efficiency of its technology, which aligns with policy priorities in China.

CRGF expects to be able to announce a further water sector investment in the next couple of months, and will continue to look at further opportunities in the tech space in India.