When Ind-Barath Power Infra Ltd dropped plans for a Rs 1,056 crore ($200 million) IPO earlier this year, it not only thwarted the fundraising plans of its controlling shareholder, but blocked an exit route for a clutch of private equity investors.
Those funds, including Sequoia Capital, Citigroup's venture capital arm and 3i, invested a combined Rs 1,177 crore ($223 million) in Ind-Barath and may get a breather as the firm is in talks to sell a big chunk to buyout giants such as TPG Capital and Apollo Global Management.
So-called secondary deals, when a private equity investor sells its holding to another such investor, have traditionally been less favoured by buyout firms than an exit through an IPO or the sale of a company to an industry rival.
But with weak capital markets shutting off the IPO option for now and mergers between domestic corporate rivals still rare, owners of Indian companies and their private equity investors eyeing the exits will be forced to look at alternatives, including secondary market deals.
KPMG figures roughly Rs 5,01,600 crore ($95 billion) in maturing Indian private equity investments made during the bull market years of 2006-2008 will come up for sale over the next three years.
"Logic suggests that a good time for exits is not a good time for investing and vice versa," said Raja Parthasarathy, managing director at IDFC Private Equity, one of India's largest private equity funds.
"But the current environment appears to be challenging on both fronts, largely on account of continuing uncertainties around the macro outlook," he said.
In India, companies tend to want to go public, ready or not.
But the BSE Sensex is down more than a fifth this year, and 13 rate interest increases since early 2010 by the central bank have pushed up borrowing costs, slowed economic growth and made investors wary.
Private equity exits through the Indian IPO market dropped 66% this year to Rs 448 crore ($85 million) in 15 deals, according to data from VCCircle.
Overall, some Rs 36,960 crore ($7 billion) worth of public offers were either scrapped or deferred in 2011, of which Rs 9,504 crore ($1.8 billion) was backed by private equity investors, SMC Global said in a recent study.
However, secondary market private equity transactions are up 9% this year toRs 3,717 crore ($704 million) in 29 deals, from Rs 3,410 crore in 14 deals last year, according to VCCircle data, and industry players expect that figure to grow.
