PE funds set to make a killing

Upcoming listings may see returns of some funds rising three-fold.

Private equity (PE) funds are looking at a more than three-fold increase in returns in some upcoming initial public offers (IPOs).

In the case of the recently concluded IPOs of Koutons Retail and Consolidated Construction Consortium, the funds are looking at returns of nearly three times the issue price "" the returns would be much bigger after listing. The issues were subscribed 45 times and 81.18 times, respectively.

Some funds are also set to hit the jackpot from the upcoming floats of Jyothi Laboratories (Actis and CLSA) and Edelweiss Capital (Greater Pacific). Both the companies have filed their draft documents with the Securities and Exchange Board of India.

Private equity funds UTI Ventures ($12 million), Argonaut Private Equity ($10 million) and Passport India Investment ($5 million) had invested $27 million in Koutons Retail, buying the shares at Rs 140 apiece couple of years back. Now, at the IPO price band of Rs 370-415 alone, the PEs have got handsome returns.

Similarly, the Chennai-based Consolidated Construction Consortium, which raised Rs 120 crore from UTI Ventures and a Middle East investor in April last year, was also sold at Rs 120-150 a share to the PEs.

The funds are sitting on at least four times returns (the IPO price band was Rs 460-510 a share) in a matter of 15 months. "We are holding on to our investments. We do not have any plans to exit our investments in the two companies," said a senior executive of UTI Ventures.

However, UTI Venture and Argonaut Private Equity exited from Zylog Systems, whose IPO was oversubscribed 76.51 times last month.

Private equity funds, New Vernon and Bessemer Venture Partners, which have picked up 9.47 percent stake in broking and financial services company, Motilal Oswal Financial Services (MOFSL), in 2006 at Rs 518.9 apiece, have more than doubled their investments. MOFSL, which was listed recently, hit the day's high of Rs 1,060 on Tuesday.

Sebi rules prohibit PEs from exiting before one year of their investments. Sources said PEs are looking at a much higher returns from MOFSL, and are expected to continue with their holdings in the Mumbai-based company. The IPO by Jyothi Laboratories will mark the exit of Actis and CLSA, where the returns are expected to be multifold, sources said.

Actis (through affiliates South Asia Regional Fund and CDC Investment Holdings) and CLSA (Aria Investment Partners), ICICI Bank Canada and ICICI Bank UK Plc are exiting their 30 percent stake in Jyothi Laboratories, which makes the Ujala fabric whitener and Maxo mosquito repellent coils.

CLSA and Actis have invested Rs 120 crore ($26.5 million) along with the foreign subsidiaries of ICICI Bank in Jyothi Labs in 2002. Actis alone has invested $13.72 million in Jyothy from 2002 till date.

Time Technoplast, in which Zephyr Peacock and Motilal Oswal Venture Capital hold pre-IPO equity, is another golden goose in the making.