The Hindu Business Line : Private equity funds look to step up PIPE exposure

New Delhi, Oct. 10 PE funds are seeing increasing opportunities in listed enterprises, with the downturn in stock valuations and the ongoing liquidity crunch prompting funds to ramp up activity in the PIPE (private investments in public equity) segment.

The trend is likely to pick up pace as Indian corporates look to hive off and monetise their non-core businesses to tide over the turmoil in the credit market, especially for working capital requirements for their core businesses, thereby providing an entry point for PE funds.

Breaking trends

While PE funds traditionally pick up stakes in unlisted firms, private equity investments in Indian listed companies accounted for around 30 per cent of the $14.2 billion PE funds invested in the country last year, and nearly 20 per cent of the $8.2 billion PE investments in the first eight months of this calendar year, according to data from Venture Intelligence.

“This trend is expected to go up… Most PE players have been holding out in anticipation of valuations dipping further as the price has to be based on six months average for preferential equity and in a few months from now the average will be reflective of today’s prices. At that time, there is expected to be a big rise in investor interest in the PIPE segment,” said Mr Saurabh Srivastava, Chairman, Indian Venture Capital Association.

The interest is despite a lot of PIPE deals in the first half of the year yielding negative returns.

While for listed firms the stock prices offer a ready valuation, for unlisted companies, the price is derived using valuations of listed peers as a benchmark.

Scope for PE funds

“With the Sensex dipping, valuations are a lot more realistic. A lot of PE funds are looking to invest… even though not much action has happened, possibly as they are waiting and watching. Liquidity among corporates, some of whom have stretched their assets too thin, for their core businesses is an issue.

"So they could increasingly look to monetise their non-core businesses, providing buyout opportunities for PE funds,” Mr Rohit Kapur, KPMG’s India corporate finance head, said.

According to Mr Sanjiv Kaul, Managing Director of Delhi-based PE firm ChrysCapital: “While FIIs have shown a negative balance in terms of outflows, we have seen that there is no flattening in dollar inflows into the country. In the last three months, which has been the worst timeframe by far, there has been an investment of $3 billion by PE funds, for they typically look at a three- to seven-year period for returns and not short-term gains. We too are actively looking at primary and secondary investments.”

ChrysCapital had recently picked up a seven per cent stake in auto component manufacturer Amtek Auto for Rs 229 crore through six block deals on the BSE and NSE involving over 9.3 million shares of the company.

The BSE Sensex, which had touched a historic high of 21,206.77 on January 10 this year, crashed to below 11,000 points on October 8 during intra-day trading before closing at 11,328.36 points. The index’s fall, despite some strong spells of buying, has been quite rapid since July under continued selling by FIIs.

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