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Over $30 billion-worth of private equity (PE) investments made during the peak of the previous bull market in 2007 and 2008 are 'overdue' for exits, according to consultancy firm Grant Thornton.
PE investors had made highest-ever investment of $19 billion in Indian companies in 2007 and another $10.6 billion in the following year. Typically, such investments are made for a time horizon between five and eight years. Robust secondary market and availability of liquidity could provide PE investors a window to cash out by way of initial public offerings (IPO), believe experts.
"PE exits are expected to surge in 2015 as the investment window of 5-8 years has already passed for several of the investments and exits are overdue," said Harish HV, partner, Grant Thornton India. "While capital markets and IPO seem to look up, secondary sale route will continue to be the most preferred for exits."
The Indian market has rallied nearly 40% in the past one year. However, the IPO market hasn't seen any significant issuances. In the past one year, only five companies have raised a total of only Rs 1,200 crore through IPOs.
A lot of companies-including large portion of PE-backed firms-are readying themselves to enter the market with public issuances, say investment bankers.
"An active IPO market is needed to provide an exit opportunity for PE investors. IPO market has been dry but there is no dearth of money. Issues are right valuations will attract investors," said Harish.
Experts believe bulk of the $30 billion PE investments made around seven years ago could be out of the money, says Harish.
This is because over $10 billion worth of these investments were made in the real estate and infrastructure sector, which have seen a lot of erosion of wealth and haven't yet regained the valuations they commanded during the previous market peak.
Also, the forex losses on these investments too are huge as the rupee was quoting around 45 levels against the dollar during 2008 compared to around 60-levels now, a depreciation of over 30%.
"For these investments to deliver positive returns, they should have grown at a compounded growth rate of over 40%. This is highly unlikely and hence, most of the investments might be in losses," he said.
Despite the losses, PE investors would still want their investment companies to get listed as it will provide the much-needed liquidity and open up new opportunities, Harish said.
