Private equity (PE) deals in listed companies are set to rise if the Securities and Exchange Board of India (Sebi) approves the Achutan Committee’s recommendations on the takeover code. However, buyouts are likely to dwindle, say major PE players in the country.
According to estimates, lack of good opportunities has kept around $30 billion PE money waiting to be deployed.
“The 25 per cent mark is positive, as PEs want to take their stake beyond 15 per cent in companies they invest in,” said Shahzaad Dalal, vice-chairman and managing director, IL&FS Investment Managers.
Among the BSE 500 companies, 98 have single public shareholders with 10-14.99 per cent holding, according to a study by SMC Capital. For such investors, the upward revision of the takeover threshold limit can be a huge opportunity to increase their holding to 25 per cent without an open offer, say analysts.
3I Asia Head Anil Ahuja, too, believes this will enable PEs to increase stakes in companies. “Most PE investors think they cannot increase their stake beyond 15 per cent, as that would mean an open offer. A 25 per cent limit provides enough flexibility for a company to raise capital and assures a meaningful stake for a PE investor. An increase in the open offer size to 100 per cent will ensure that only serious buyers cross the 25 per cent level,” said Ahuja.
The report suggests an open offer for 100 per cent stake if the acquirer takes 25 per cent in a listed company. Experts believe PE players will need to shell out much more now than the present requirements. Under the present regulations, a company needs to make an offer for only an additional 20 per cent stake.
“The number of buyout deals may fall, as one may need more cash to buy the entire 100 per cent stake. It will be three times of what is required in the current transactions. You should have cash for that 100 per cent stake instead of 35 per cent,” said Dalal.
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Bharat Banka of Aditya Birla Equity said the 15 per cent threshold was a hurdle for PE firms that wanted to infuse substantial capital into a company. But the current 25 per cent should be good enough. “I think this practice is followed in several other markets internationally too. It’s a significant move as it will allow 100 per cent exit opportunity to investors. Overall, this is the right step, but I think the number of open offers being carried out in the market will come down initially. Acquirers may not have the inclination or capital to buy 100 per cent,” said Banka.
But, many believe this is a big opportunity for PE investors. “Most PE players in India prefer to invest in unlisted firms. One school of thought is that 100 per cent buyouts may lead to huge outflows. However, considering the appetite for Indian assets among global investors, it can be reasonably assumed that these investors won’t shy away from such prospects. Hence, Indian promoters have to be on their toes to handle any ‘hostile takeover’ bids for companies they have developed for decades,” said Jagannadham Thunuguntla, equity head, SMC Capital.