PE funds trapped in falling markets
by www.indiape.com on Fri 10 Oct 2008 09:07 PM IST | Permanent Link | Cosmos
Falling equity markets have trapped major private equity (PE) investors such as Warburg Pincus, Blackstone Group,
Carlyle, Apax Partners, Chrys Capital and Citigroup.
Last year, when the market touched new highs, these PE
funds invested in companies such as Bharti Airtel and
Suzlon, some with one-year lock-in periods. Now, the value
of these investments has fallen drastically and the funds
find their PIPE (private investment in public enterprises)
portfolios awash in red. PIPE deals include qualified
institutional placements, or QIPs, which have no lock-in and
private placements.
According to a report by SMC Global, the value of PE
funds’ 2007 PIPE investments (as on September 30, 2008)
has dropped 24 per cent to $4.02 billion from $5.29 billion.
Of the 63 deals in 2007, only nine are in profit.
For instance, Blackstone had acquired 67 per cent in Gokaldas Exports for $155 million at Rs 275 a share in
December 2007. The value of the investment is now $51 million with the share trading at Rs 106.
Blackstone had also invested $149 million in Nagarjuna Construction in December 2007. As on September 30, this
value had dropped below $50 million.
Similarly, Apax Partners acquired 12 per cent in Apollo Hospital Enterprise for $103 million at Rs 605.07 a share. The
share trades at Rs 400.
Carlyle acquired a little over 5 per cent in Great Offshore for around $40 million at Rs 860 a share. Last Wednesday,
the share price closed at Rs 287.
Besides private placement, these investors also bought shares through qualified institutional placements (QIP). Such
investments do not attract a lock-in period, but PE funds have still found it difficult to exit owing to the falling market.
For instance, GMR raised $960 million in December 2007 through a QIP when the share was trading at Rs 240. Eton
Park, Credit Agricole and Deutsche Asset Management were among the participants besides government financial
institutions such as Life Insurance Corporation of India, State Bank of India and Canara Bank. Latest data shows that
the three Indian entities still hold these shares, which are now trading at Rs 60.
Source: Business Standard