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Temasek-backed InnoVen seeks Asia expansion to fill lending gap

[MUMBAI] InnoVen Capital India, controlled by Temasek Holdings, is seeking to expand its venture debt business across Asia as banks in the region shy away from lending to early-stage companies.

The seven-year-old Mumbai firm plans to use its underwriting model honed in India to expand into Southeast Asia this year and later to China, Chief Executive Officer Ajay Hattangdi said in a May 26 interview. InnoVen has provided debt to over 50 venture capital-backed companies including, the Indian web marketplace backed by billionaire Masayoshi Son's SoftBank Corp.

InnoVen's team of seven employees makes loans of as much as US$4 million to startup companies in sectors as varied as technology and fast food at an annual interest rate of about 16 percent, according to Hattangdi. It's providing growth capital to firms that banks are reluctant to lend to because they have little cash flow and few assets that can be used as collateral, he said.

"If a company has a proven proprietary model to assess the credit risks and price the loans right, the competition will be limited now," P. Karthikeyan, a Chennai-based analyst at Cholamandalam Securities Ltd, said by phone on May 27. "Banks in the region choose to stay away from lending to early-stage companies as they don't have the required underwriting skills."

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Temasek, Singapore's state investment company, acquired SVB Financial Group's India unit for about 3 billion rupees (S$63.5 million) in a deal completed last month and renamed it InnoVen. The company has lent money to businesses including Myntra Designs Pvt, an online apparel retailer, and, which sells baby accessories over the Internet, according to an e- mailed statement.

The debt provided by InnoVen comes with a so-called "equity kicker," allowing it to gain a stake in the businesses it lends to in order to benefit from their eventual sale or listing, according to Hattangdi. The rising valuations of Indian startups backed by InnoVen will help the firm boost returns, he said.

Valuations of Indian online-retail startups are "rich" compared with global peers, UBS Group AG wrote in an April 14 research report. Indian Internet companies may be collectively overvalued by as much as US$8 billion, and investors are paying a premium based on expectations of exponential growth, analysts led by Gautam Chhaochharia wrote in the report.

"There is a lot of frothiness," Mr Hattangdi said. "At the end of the entire cycle, there is going to be a tapering off, and you want to be careful of how you are exposed."