The market may have rallied in the run-up to the elections, but that has not provided any breather for private equity investments made before 2008. Among those that made unprofitable exits were Goldman Sachs Strategic Investments, Actis and Frontline Strategy, which offloaded their investments in the open market in March. While Frontline took the maximum haircut — selling its investments in
Alfa Transformers and Valiant Communications at 75-80% loss in rupee terms — Goldman sold some of its stake in Bharti Infratel at an over 14% loss.
Analysts say the sharp rupee depreciation over the last few years, along with the slowdown in economic growth, may have prompted these investors to throw in the towel.
Arpan Sheth, PE practice head of Bain India, says the return expectations from PE investments made so far have suffered with the rupee falling by up to 25% in the past 18 months. “Investments made in 2007-08 suffer from high-entry valuations, and while the general partners continue to wait and watch, expecting a recovery in growth and a potential re-rating of multiples, limited partners remain less optimistic about outcomes,” Sheth added.
The number of exits in 2013 increased 43% (115 to 164), even though the total exit value remained flat at $6.8 billion, as per Bain’s India Private Equity Report 2014. Experts expect more exits down the line.
Madhur Singhal, principal in PE practice at Bain & Co India, said there was a sizeable pipeline of investments that continue to be in PE fund portfolios and are waiting to exit.
“We believe the pace of exits will pick up as GPs run out of time to exit investments of pre-2008 vintage. The flow of secondary deals has already increased and a greater number of strategic investors are waking up to the opportunity of picking up stakes in PE-backed companies. A continued surge in the capital market — even after the general elections — a partial recovery in the rupee, and a stable government with a bias towards growth could provide a strong impetus to exit deal flow,” he added.