Diminishing share prices of listed companies have hit the portfolios of the largest private equity majors such as Blackstone, Carlyle and Warburg Pincus. Following the recent market crash, the investments they had made in the past have declined drastically, by 70-80 per cent.
However, experts believe transactions in the listed space are likely to go up as the typical fundraising sources dry up, leaving enough room for more PIPE (private investments in public equities) transactions.
Blackstone, one of the largest global PE players, bore the brunt of a decline in stocks listed on Indian bourses. Its investments in Gokaldas Exports shrank 70 per cent. It had invested $158 million in 2007 to acquire 67.88 per cent stake in Gokaldas. Shares of Gokaldas, bought by Blackstone for Rs 275 apiece, touched their 52-week low of Rs 70 on the Bombay Stock Exchange (BSE) on Friday.
Mayank Rastogi, partner (private equity), E&Y, said: “The LPs (limited partners) are mature enough to discount the spikes and troughs. If the delta between the market price and the potential deal price is large, fund managers will need to have a solid rationale for their investment committees/LPs to give higher value.”
On Friday, shares of Nagarjuna Constructions Co Ltd (NCC) touched their 52-week low of Rs 52 on BSE. Blackstone had invested about $150 million in NCC Ltd to buy 12.2 per cent stake, and NCC had issued 20.2 million equity shares of Rs 202.50 each and 9.1 million warrants of Rs 225 each to Blackstone. However, it is not known if Blackstone has converted the warrants. At present, Blackstone holds about 9.9 per cent stake in NCC.
Blackstone has invested about $60 million in logistics player Allcargo Global Logistics since 2008 and has seen an erosion in the latter’s share price. It had converted the fully and compulsory convertible debentures of Allcargo to 1.08 million shares in September 2009, for Rs 934 per share. Though there was a stock split, shares of Allcargo, where Blackstone currently holds 12.22 per cent stake, touched their 52-week low of Rs 151 on Friday on BSE.
Akhil Gupta, senior MD & chairman, Blackstone Advisors India, did not respond to queries from Business Standard.
Havells India, in which PE firm Warburg Pincus holds about 3.69 per cent stake, has witnessed a drastic fall in its share prices over last two years. Warburg Pincus had invested $110 million to acquire 11.2 per cent stake in Havells India in 2007, through a combination of warrants and equity. It converted warrants into shares at Rs 690 each in 2010 and currently holds 3.69 per cent in the company. Last week, Havells India shares were traded at a one-month low of Rs 313 on BSE.
A Warburg Pincus spokesperson said: “We are unable to share any perspective as the firm is bound by internal operational policies, which do not allow discussions on its investment activities in India.”
According to Manish Kejriwal, senior managing director at the Singapore government’s investment arm, Temasek Holdings, there is no room for concern if the fundamentals of the portfolio companies are strong. He said: “In a long-term perspective, variations in stock prices will not have any major impact on the investor.” In one of the largest PIPE deals, Temasek had acquired 4.99 per cent stake in Bharti Airtel for $2 billion in 2007.
Another global major, Carlyle, saw a decline in the share price of HDFC Ltd, where it had invested $650 million to acquire 5.6 per cent in 2007. It had bought shares at a premium, at Rs 1,730. In May 2010, HDFC’s shares were subdivided in the ratio of 1:5. The shares were traded at Rs 628 on BSE last week.
Carlyle India MD Shankar Narayan did not respond to queries from BS.
Vinod Kumar, founder director at Veda Corporate Advisors, a boutique investment bank, said: “The mark-to-market issue does stare straight into the face of some of these funds. Seasoned investors that have seen multiple cycles of the market would know this is more of an opportunity than a grave situation.”
Shares of Indiabulls Real Estate, in which TPG Caital had invested $200 million to buy shares at Rs 185 in 2009 through QIP, touched their 52-week low of Rs 70 on BSE last week.
Even as the share prices have been declining drastically, experts rule out the possibility of a decrease in number of PIPE transactions in the future.
Vinod Kumar said: “The valuations may not be attractive for the promoters, but, with many listed companies having pressed the hyper growth button, the need for funds is certain. This offers some compelling PIPE opportunities.”
Rastogi echoed the same view. He said, “Existing listed companies will find it more attractive to raise private equity funds than going for rights issues, as PE investors may tend to value a company on its fundamentals rather than on the basis of short-term price movements.”
According to data from VCCedge, the overall size of PIPE deals decreased from $3 billion in 2007 to $456 million in 2010. Till August 2011, about 15 deals, worth $459 million, have taken place.
