Though the hikes in valuation of late have helped private equity investors make decent exits, private investments in public equity (PIPEs) of 2008 are still posting mark-to-market (MTM) losses. PIPE investments in 2008 have witnessed MTM losses of 26.85%. Investment of $1.67 billion has eroded to the current MTM value of $1.22 billion, representing an absolute loss of $0.45 billion.

As per the current market value of the investments made in public equities in 2008, retail sector has witnessed the highest percentage of value erosion with 77%, while infrastructure and pharmaceuticals sectors came second and third with 60% and 59% of erosion, respectively, according to a study by New Delhi-based SMC Capital.

Jagannadham T, equity head, SMC Capitals Ltd, told FE, ?The reasons of erosion in the PIPEs essentially are due to significant high entry valuations. And also, the severe market correction in 2008 has added to the severe erosion. PIPE investments are still underperforming because the private equity investors have underestimated the severity of the bear market and have continued to invest in the first half of 2008. This has resulted in the blockage of PIPE investments under the unprecedented severity of bear market of late 2008.?

Out of the total 30 PIPE deals, only three deals are in profit as per the current MTM valuation. Major sectors, which have seen the highest erosion, include education (48%), engineering (49%) and media(41%). Sectors such as energy (6%) and oil & gas (11) have seen lowest erosion.

About $622 million, invested in banking, financial services and insurance (BFSI) sector, has been eroded to $457 million while $292 million invested in the manufacturing sector was reduced to $209 million.

Jagannadham added, ?Smart market rally of 2009 has given PE investors a breathing space regarding the performance of their PIPE investments of 2008. However, even now, 90% of the investments are below-the-water. To achieve the ?target IRR? levels of PE funds, the market needs to rally to much higher levels. Overall, PE investors have gone through a lot of tense moments and had to pay lot of tuition fees to learn about investing in India.?

Kotak?s investment in Heritage Foods saw an MTM loss of 79.88%, while New Veron?s in Prime Securities saw 89% MTM loss. Nalanda Capital made an MTM profit of 72% in its investment in Sun TV.

Losing ground

•Investment of $1.67 billion has eroded to the current MTM value of $1.22 billion, representing an absolute loss of $0.45 billion

•Retail sector has witnessed the highest value erosion with 77%, while infrastructure & pharmaceuticals witnessed 60% and 59% of erosion, respectively

•PIPE investments are still underperforming because the PE investors have underestimated the severity of the bear market

•Out of the total 30 PIPE deals, only three deals are in profit as per the current MTM valuation

•Major sectors, which have seen the highest erosion, include education (48%), engineering (49%) and media(41%)

•About $622 million, invested in banking, financial services and insurance (BFSI) sector, has been eroded to $457 million

•To achieve the ?target IRR? levels of PE funds, the market needs to rally to much higher levels