Many bankers say PE funds, flush with uninvested money or gunpowder in industry parlance, will catalyse consolidation among Indian companies.
This year will be a year of M&A, says Munesh Khanna,managing partner at global advisory firm Grant Thornton.Companies may find it difficult to raise money for acquisitions, but PE funds will trigger consolidation among their portfolio companies. We will see next level of portfolio consolidation by PE funds, says Ramesh of Kotak Investment Banking.
PE funds, learning from bitter battles with promoters of companies in which they invested,now want control.
One rule that we have learned from India is that we need to have control if there is a need to change the company, says the managing director of a large PE fund that invested in five large companies and have taken over one. PEs should be able to pinpoint the problems within the company as soon as they join in and PEs ideally bring in the global expertise within their portfolio companies.
So they are not taking any more chances.
PEs and companies need to have an agreement or charter which is clear and clarifies everything beforehand, says the managing director. Companies can be improved fundamentally, but culturally it may not be possible to change them. He asked that neither he nor his firm be identified, citing the funds media policy.
Conversion of foreign currency convertible bonds or FCCBs by PE funds can alter the shareholding pattern in companies. Shares of Indian companies that issued FCCBs in 2005 are trading at a heavy discount to the conversion price and promoters with lower shareholding will end up losing control. On the other hand,investors who convert their bonds will end up owning a higher stake in the company than anticipated earlier.
PE fund Clearwater converted its FCCBs into equity shares in Kamat Hotels and now owns 32.23% of the firm.
The fund has made an open offer for an additional 20%, as mandated by law.
Indian companies that had to repay anywhere between R1,500 crore and 2,000 crore by 2013 will have to shell out between R5,000 crore and R6,000 crore as the rupee depreciated, says Sridhar Chandrasekhar, head Crisil Researh A push for policy changes by the government may also improve investor sentiment. Inaction will have to make way for action, says Bobby Parikh, managing partner at BMR Advisory, a consulting firm. Among other things, the government has rolled back a decision to allow foreign retail chains like Wal-Mart and Tesco to buy up to a 51% stake in Indian retail chains.