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Passage To India, Compliments Of George (Int'l Edition)


Business Week International Finance: Investors

PASSAGE TO INDIA, COMPLIMENTS OF GEORGE (int'l edition)

Everyone from his boss to his secretary calls him P.C., with affectionate informality, and his understated manner can be almost nerdy. Yet 45-year-old Purnendu Chatterjee inspires respect--and sometimes fear. For 10 years, global investor George Soros has taken small stakes in Chatterjee's lucrative turnaround ventures in the U.S., mostly tiny companies with a technological niche. Now, at the helm of Soros' billion-dollar Quantum India Fund, Chatterjee is making waves in the country of his birth. For Soros, Chatterjee means easier entree into one of the world's most promising but most regulated emerging markets. And the Soros connection puts ample resources at Chatterjee's disposal.

The return of this native son to his homeland, trailing a world-famous investor's dollars in his wake, is the latest career move for a man marked by controversy. As recently as January, 1993, Chatterjee was dealing with a Securities & Exchange Commission allegation of insider trading. A few years earlier, a takeover target took him to court. Yet Soros' New York headquarters is now home to the Chatterjee Group, an affiliate of Soros Fund Management. And even before naming him as principal adviser to the new India fund, Soros appointed Chatterjee to co-manage the $1.5 billion Quantum Industrial Holdings Fund and $500 million Global Power Investments, two funds aimed at investing in emerging markets.

Canny, meticulous, and at home in both Anglo and Indian cultures, Chatterjee has obviously proved himself to Soros, despite his run-in with the SEC. Says Anupam Purie, who heads McKinsey & Co.'s Indian operations and used to work with Chatterjee: "P.C. is smarter than anybody else I know, by a factor of at least 10." George Soros declined to comment about Chatterjee and their investments.

Chatterjee was born to a middle-class family in Calcutta and went to one of the prestigious Indian Institutes of Technology. After getting his engineering PhD from the University of California at Berkeley and working for a while at the Stanford Research Institute, he spent 10 years at McKinsey in the U.S., the last two as a partner. During his tenure there, he married the daughter of Indian steel magnate Viren Shah. He now divides his time between India and New York City, where he keeps a modest apartment overlooking Central Park.

His background clearly benefits him back home, where, despite a gradual liberalization, the government remains wary of foreign investors. Just last month, the Chatterjee Group secured a 26% stake in UB Ltd., a conglomerate with interests in brewing, distilling, pharmaceuticals, engineering, fertilizers, and plastics.

SLEEPING BEAUTY. Soros and Chatterjee scored their first major coup in India last May, when they brought to life the comatose Haldia petrochemical project near Calcutta. For 17 years, the project was a sleeping beauty. Then, P.C. reconfigured Haldia's business plan to provide better cash flow. More important, he brought a $200 million capital commitment from Soros. Within days, the project's equity structure was finalized: It would be 25% owned by Soros, 25% by the state government of West Bengal, around 8% by India's Tata family, and 42% publicly held. Soros made this move through Chatterjee Petrochemical, a company set up to channel funds to Haldia and based in Mauritius, which has favorable tax treaties with India.

The local press loved it. Besides making much ef Chatterjee, the media heralded Soros as a Hungarian Jew who had escaped the Holocaust and took personal interest in India's downtrodden millions. Downstream industry will provide 100,000 jobs for the region where P.C. was born.

With an evolving middle class and a 24% personal savings rate, India now has P.C. excited about retail financial services. In 1994, the Chatterjee Group took a 24% stake in a Calcutta-based brokerage. P.C. has also agreed to invest $50 million of Soros' money in the asset-management arm of General Insurance Corp., India's largest property casualty insurer. The company expects to spawn a series of mutual funds.

Bringing First World conveniences such as mutual funds to the Third World always seems to bring out the best in P.C. For example, Phoenix Information Systems, based in St. Petersburg, Fla., had been developing airline-reservations software for emerging markets since 1986. It was still floundering in 1992, when P.C. began accompanying Phoenix managers on trips to China, Russia, and India. By late 1994, three joint ventures were in place, the first of which is expected to be up and running in China by mid-February.

Then came capital from Soros, Chatterjee, and Quantum Industrial Holdings. They initially bought 1.3 million shares of Phoenix, for 90 cents a share, then committed an additional $12 million. Ultimately, the Soros group will own 29.9% of Phoenix--and it holds warrants to purchase shares in the future for as little as 72 cents. Phoenix shares are currently selling for $1.31.

While P.C. and Soros have made money together, they have not always been as welcome as they were at Phoenix. Chatterjee first met Soros in 1983, when P.C. was a partner at McKinsey and growing restless with consulting. A year later, the two bought a tiny electrical components manufacturer called John Beall & Co. At the time, Soros invested only $340,000. But he and Chatterjee subsequently used Beall as a vehicle for other investments.

One was a 1986 hostile-takeover attempt of T-bar, a $50 million computer company based in Wilton, Conn., that eventually fled into the arms of a less hostile suitor. P.C.'s attempts to acquire the company prompted a lawsuit. T-bar alleged that Chatterjee and Beall benefited from short-swing profits through trading T-bar stock after they had acquired a 10%-plus ownership in the company, violating SEC restrictions against such trading by officers, directors, and 10% shareholders. The court ordered Chatterjee and Beall to pay $114,500. Quizzed about the case, Chatterjee says he thinks T-bar's lawyers were just trying to buy the company time to get another bid.

It was P.C.'s involvement in Foxboro Co., a $600 million Massachusetts-based maker of industrial instruments, that prompted the SEC investigation. Soros and P.C. had accumulated a 4.8% stake in the company, and Chatterjee was on the board, when it was sold to a British conpany in 1990. Chatterjee was accused of supplying inside information on Foxboro, before the sale, to an individual in France and a consultant in Connecticut. He paid $643,855 in a consent decree with the SEC without admitting any wrongdoing.

BITTER STRUGGLE. Chatterjee developed a reputation for buying companies, getting on their boards, and breaking them apart. Says analyst Thomas Carley of Jensen Securities Co. in Portland, Ore.: "If you look at everything he touched, there was restructuring, sales of the assets or of the company itself."

Perhaps the bitterest struggle was fought in 1991-94 at Tektronix Inc., a $1.3 million computer and electronic instrumentation company. Quantum Fund, Soros, and Chatterjee bought into Tektronix at $18 to $20 a share, when analysts were estimating the company's breakup value at $40 to $42. According to analysts, P.C. gave management an ultimatum: Realize this value or you're history. The Soros group finally capped its ownership at 14.9% of the company in exchange for two board seats.

During 1992-94, a host of divisions were spun off. Says Shawn Willard, an analyst with Charter Investment Group Inc. in Portland, Ore: "Somebody had to be the bad guy, and P.C. was it. [Tek] had some phenomenal technology, but they had no idea what to do with it." By November, 1994, Tek stock was nearing its breakup value. Soros and Chatterjee began selling at $35 to $37 a share, double their purchase price.

In India, Chatterjee and Soros intend to build companies, not break them up. But they're betting that their synergy will be just as successful in a market where they have to start from scratch. Chatterjee says very little of his own funds are invested in India: "Almost everything is Soros. I need his money." Apparently, there's something about P.C. that George Soros needs, too.

Chatterjee's Progress

1974 Chatterjee receives PhD in engineering from University of California, Berkeley, proceeds to Stanford Research Institute.

1976 Joins McKinsey & Co.; promoted to partner in 1984.

1984In partnership with George Soros, takes over components maker John Beall & Co.

1990 Shareholders of T-bar,

a takeover target, sue Chatterjee and Beall for improper trading; defendants pay $114,500

1993 Chatterjee pays $643,855 in an SEC consent

decree for insider trading of

Foxboro, an electronics company in which he and Soros hold a combined 4.8% stake.

1994 Soros appoints Chatterjee investment manager for the $1.5 billion Quantum Industrial Holdings, $500 million Global Power Investments, and By Louise Nameth and Joan Warner in New York, with Shekhar Hattangadi in Bombay


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