US-based global hedge funds DE Shaw and Och Ziff are learnt to be considering setting up non-banking finance companies (NBFC) in India, after the final guidelines for setting up NBFCs by foreign companies are announced.

Both DE Shaw and Och Ziff have been making investment in India as private equity funds through their Mauritius-based funds. The two hedge funds together have nearly $50 billion in aggregate investment capital and are one of the largest funds in the world.

An email sent to Och Ziff did not elicit a response and a DE Shaw spokesperson declined to comment on the issue. Sources say that the move to set up NBFCs is also being considered by four-five other hedge funds. Farallon Capital Management, Citadel, Fortress Investment Group and Marathon are some of the other hedge funds that have become active in India, although it’s not known whether all of them plan to set up NBFCs.
Setting up an NBFC in India would mean that the hedge funds will come under Indian tax laws.

Till now, these funds have been operating from their Mauritius funds. Thus, they are out of the ambit of the Indian laws. While the NBFCs of these funds will be taxed, sources say these are being considered as the hedge funds are keen on a greater presence in India. “The net returns that these hedge funds make are very good and they can afford tax inefficient structures,’ said an investment banker.

Hedge funds have been investing in India either through P-Notes, private equity or through the pre-IPO placement route in companies. Sources say that hedge funds are evaluating deals across sectors, including real estate, manufacturing, infrastructure and IT. Some experts suggest, as many as 50 hedge funds have exposure in the real estate sector.

DE Shaw recently picked a 18% stake in North India-based media house Amar Ujala Publications in both its newspaper and its printing company for about $26 million. Och Ziff, which is one of the investors in British soccer team-Manchester United, recently picked a 25% stake in Bangalore-based realty company Nitesh Estates for $55-60 million.
Source : Economic Times