IPO slump slows PE exits in unlisted cos

Nitin Shrivastava Posted online: Sunday, Apr 20, 2014 at 0000 hrs
Mumbai : Because of a dull and uncertain IPO environment in the past couple of years, private equity (PE) investors in unlisted firms are waiting for meaningful exits, even as the secondary markets have seen a revival.

For PE companies such as Warburg Pincus, ChrysCapital, New Silk Route and Aditya Birla PE,  investments worth Rs 486 crore are stuck for the past couple of years, but the poor primary market conditions have not enabled any exits.

Moreover, a mismatch in valuation expectations has meant that many companies have withdrawn their IPO plans, and even those who have received Securities and Exchange Board of India’s (Sebi) approval, are not pushing for listing any time soon.

Trimax IT Infrastructure — which has Banyan Tree Growth Capital, Aditya Birla PE and Zephyr Peacock Management as its private equity investors — last month gave up its IPO listing plans in India.

New Silk Route-backed Ortel Communications and ChrysCapital-backed Intas Pharmaeutical, too, seem reluctant to tap primary markets despite having Sebi approval in place. Warburg Pincus, which had invested in Aryan Coal Beneficiation (ACB) in 2006, has been waiting for an IPO for the past three years even as ACB (India)’s second IPO proposal is still awaiting Sebi’s nod.  

Ravi Agarwal, executive vice-president (strategic finance and investor relationship) at Trimax IT Infrastructure, told FE that they are exploring offshore listing options and strategic stake sale opportunity for its PE investors.

“The domestic primary markets have not seen much appetite and very little action in the past three-four years. The management and PE investors are of the view that the technology companies typically get better valuations in offshore listings. At the same time, we are open to any strategic stake sale opportunity to enable exits to PE investors who typically invest with a four-six year time horizon,” Agrawal said.

Similarly, Intas Pharmaeutical, which expects a turnover of $700 million in fiscal 2014, has been exploring exit options for one of ChrysCapital’s investment in 2006 with other PE players like Temasek and GIC Singapore, even though it has not shelved its IPO plans.

“We have not yet commenced our preparations for moving forward our marketing plans for an IPO. ChrysCapital has been seeking to exit its investment from the fund, which is nearing completion of its term. However, they are working closely with the company on various options. We have spoken to a couple of funds for their exit. However, no final call has been taken,” Jayesh Shah, chief financial officer at Intas Pharmaeutical, told FE.

Since the start of calendar year 2013, six companies have tried tapping primary markets on exchanges’ main board, but only three have been successful to raise capital, while the other three withdrew on account of poor subscription response.

Wonderla Holidays last week announced its IPO, looking to raise around Rs 180 crore. If successful, this would be the only second primary listing on the main board since Just Dial went public in June 2013.

Last year saw just one successful IPO exit for PE investors, with the R950-crore Just Dial issue providing over 800% returns for Sequoia, SAIF Partners and Tiger Global on their partial stake sales.

General Partners at PE firms believe that IPO as an exit route for PE investments would not see much traction in 2014. As per a Bain & Co India private equity 2014 report, only one or two respondents of the 53 surveyed expect IPOs to be the most common route in 2014, while 40% of them see the IPO exit route gaining significance in the next one-three years.