PE-backed companies to revive IPO market

For the first time after 2010, more than Rs 30,000 crore is expected to be raised through such offers, with the capital markets having revived

Initial Public Offerings (IPOs) are set to make a return this year, with private equity (PE)-backed companies asking investment bankers for help to give their investors an exit route.

In the past four years when the capital markets were not buoyant, promoters of these companies had looked for investments from these firms.

According to Citigroup Global Markets, 2015 is expected to have 30 to 35 good quality IPOs, worth around $5 billion (Rs 31,500 crore), translating to $25 billion (Rs 1.5 lakh-crore) worth of value in the marketplace.

“We expect 90 per cent of this IPO pipeline to be led by PE-backed growth companies, as the current market provides these investors viable exit opportunities,” says Ravi Kapoor, head of corporate and investment banking at the global firm. He expects equity valuations from $500 million (Rs 3,150 crore) to $1 billion (Rs 6,300 crore) to enter the IPO market, with offers from $100-200 million (Rs 630-1,260 crore).

This is a big leap from the Rs 329 crore raised through six IPOs in 2014, in which two PE-backed companies saw their investors monetising their stakes. The IPO market had previously seen buoyancy in 2010, when 64 companies raised Rs 37,534 crore, though only 12 PE-backed entities had seen their investors monetising their holdings, shows information provided by Prime Database.

“Potentially, the year can see the largest-ever number of IPO listings by PE-backed firms. We estimate 25 to 30 such companies going for IPO listing in 2015, creating a liquidity platform or partial exits,” says V Jayasankar, senior executive director and head of equity capital markets at Kotak Investment Banking.

  Avlon Consulting, an entity tracking PEs, says Rs 1.8 lakh crore of PE investments were made in Indian companies between 2010 and 2013. Of this, Rs 1 lakh crore hasn’t exited.

“This is because of the lag effect due to the subdued IPO market in the recent past, which saw PE investors waiting for an exit opportunity,” says Ajay Saraf, executive director at ICICI Securities. So, the past three to four years saw a rise in secondary sales, where one PE investor sold to another. There were also a large number of promoter buybacks, as PE investors were not able to find exits at the expected return.

From the website of the Securities and Exchange Board of India, 18 companies have filed a Draft Red Herring Prospectus and plan an IPO this year. Of these, 13 are PE-backed. With more in the pipeline, this could easily meet the investment bankers' estimate of a record number of PE-backed IPOs in the year.