Okay - I need to give you a little background to this. I am currently based in India and am looking to invest in a small turnaround opportunity out here. I work with a US venture capital fund and need to raise equity through both this fund and a consortium of other investors. The total amount that I am looking to raise is small (approx $1.5m). The company that I am planning to buy has assets of around $2m and debt of about $1.5m. They have a working capital shortfall and have not been able to service this debt for some time. The company is in bankruptcy and I think that it is an interesting turnaround opportunity.
However, some of my investors have indicated that they wish for me to raise some equity locally. My question really revolves around providing a solid reason for NOT doing so. Access to capital is restricted in India but what are the main reasons WHY this is the case? ie What are the macro-economic reasons behind why is it difficult to raise money here? Cost of debt capital is high because of higher interest rates and greater risk, but why is equity financing so hard to come by?
I expect that a company like the one I am looking at would have easily found financing in the US. It has an existing customer base in an old-economy industry with outstanding orders and solid gross margins. I am interested in any information any of you Dopers may have on this, particularly technical & detailed info. Thanks!