Value of private equity investments dipped 60-70 per
cent, says Indian brokerage
05.01.09
The value of investments made by private equity firms in 2007 were eroded
by 60-70 per cent, or nearly USD2.25bn, over the past few months amid
turbulent economic conditions and falling stock markets, a study says.
Of the 63 deals involving private equity investment in 2007, 92 per cent or 53 deals
saw the investments losing value, according to the report by SMC Capital.
'Private equity firms lost about 60-70 per cent of their investment-worth with the
capital markets losing steam and economic conditions worsening,' says
Jagannadham Thunuguntla, head of the capital markets arm and director of SMC
Capital. 'Continuous downfall and rough market conditions were the primary
reasons for this huge capital erosion.'
The overall return on investment in public companies reflects a loss of USD2.24bn
on a total investment of USD5.29bn made in 2007.
Current valuations of private investments in these companies stand at USD3.05bn,
says the SMC Capital report.
Of the total investments across nine industries surveyed by the firm, only one -
telecom - proved lucrative with capital invested appreciating 9.6 per cent over the
past year. About USD1.3bn invested in the telecom industry rose to USD1.42bn by
December.
The other eight industries turned out to be wealth destroyers and among them retail
investments took the hardest hit, losing 91.43 per cent of their value.
'Losses have been all-pervasive, which shows that these companies were
over-valued when the bull market frenzy was on,' adds Thunuguntla.
IT and IT-enabled services, real estate, media and manufacturing were some of the
other sectors that turned out to be poor investment avenues. Of these, the first two
were the worst performers, with all 15 investments made in these two sectors
performing badly.
Private equity firms bought into these companies at high valuations in 2007 but lost
out during the course of 2008 owing to destructive market conditions, with only five
deals yielding profits.
The report suggests there might be more bad news in store for private equity firms

if the liquidity crunch in global markets does not ease up.
'Firms which are owned by banks and other financial institutions may be forced to
sell at a loss if their parent entity is faced with a cash crunch,' Thunuguntla says.
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