Despite a number of private equity-backed companies receiving approvals to float initial public offerings (IPO) in the past one month, PE funds looking to exit investments through the primary market might have to wait longer to do so profitably.
In February alone, at least five such companies received approval from market regulator Securities and Exchange Board of India (Sebi) to launch IPOs, with a combined issue size of over R1,200 crore.
But the market for primary equity issuances remains lukewarm, as was demonstrated in the case of Ortel Communications’ IPO that ended on March 5, where PE firm New Silk Route could exit just over half of its holding in the company.
Similarly, Adlabs Entertainment IPO’s closing date was extended as the issue was under-subscribed, besides lowering of price band.
Says PRIME Database’s founder and chairman Prithvi Haldea, “Presently, IPO valuations are not appealing to private equity players. I’d be surprised if there are more than 15 to 20 IPOs this year.”
There were 35 IPOs in 2014, which saw companies raise a total of $238 million. Low investor interest is due to concerns over valuation, quality of operations and assets and corporate governance issues.
Mukul Singhal of PE firm SAIF Partners, said PE firms might need to wait another year or two for primary markets to improve.
Arvind Mathur, president of Indian Private Equity and Venture Capital Association, said the current focus is more on exits via the mergers and acquisitions route than IPOs.
However, this hasn’t deterred PE-backed companies from filing for IPOs.
Between September and December 2014, buoyed by a pro-reform government and improving economic outlook, at least 10 PE-backed firms filed draft red herring prospectus with Sebi. Five of these are still awaiting approval.