PE deal structures needs to be investigated: Samir Arora

The circumstances surrounding VG Siddhartha’s disappearance has raised concerns over the structure of some private equity deals where investors seek guaranteed returns.

Singapore-based manager of India focused fund Helios Capital on Tuesday questioned the deals between private equity (PE) funds and listed companies. Commenting on micro blogging site Twitter on the issue arising out of VG Siddhartha’s letter, Samir Arora said that though PE investors buy equity shares, they were actually debt-investors disguised as equity investors who seek minimum guarantee return on investments and mislead larger public. Siddhartha, who has been missing, purportedly wrote in a recent letter that he was under pressure from certain PE investors.

The letter said that there was tremendous pressure from one of the private equity partners and lenders, which led to a liquidity crunch and made him ‘succumb to the situation’. He was referring to two entities – a private equity partner forcing him to buy back shares and trouble from income tax that blocked him from selling Mindtree shares amid the takeover battle that ensued between Mindtree and L&T. Siddhartha said that he had to borrow a large sum of money from a friend to partially buyback shares.

“I have been maintaining that PEs come in as equity investors, mislead public, but are actually disguised debt investors. Every deal of PEs related to listed companies should be made public,” Arora Tweeted from his handle @Iamsamirarora. “How can a plain shareholder – large or small – put pressure on promoter to do buyback unless there is a deal. Now ask, under what rule is such non-transparent deal allowed in listed shares,” Arora asserted.

Arora is of the view that another place where PEs actively mislead public is in buying stakes in unlisted subsidiaries at very high valuations and that markets take it as big increase in ‘sum of parts’ whereas it is just a debt deal as far as the PE is concerned with some equity related upside.

Kiran Mazumdar Shaw, Chairperson and Managing Director of Biocon, said in a tweet, “It (the letter by Siddhartha) seems to indicate that the Private Equity fund manager acted like a money lender n seems to have caused unbearable stress - needs to be investigated”