Plunging rupee, falling stocks trip private equity exit plans

MUMBAI: Private equity funds’ cup of woes seems to be brimming over, as both stocks and rupee continue to plunge and exits becoming tough after more than 6-7 years of being invested. Funds have lost anywhere between 75% and 99% of the value of their investments in around twothirds of the 52 listed companies.


“Currency depreciation is a definite worry and it makes exit difficult. But as a fund, we have to invest and exit all the time. Globally, LPs are recalibrating their exposure to emerging economies and we will see the effect of it on new investments and fund raising,” said Asheley Menezes, managing director of Chrys Capital, a leading PE fund. “Also, the investors factor in a 5% depreciation in value on account of currency volatility every year.”

Even the shares of profit-making companies have lost their gains by 20-30% in dollar terms in the past three months. While M&M Financials lost 22%, Apollo Hospitals, Shriram City Union and MphasiS lost 28%, 32% and 33%, respectively, in the past three months. The rupee had plunged by 56% to 64.31 from a high of 39 in 2007 making it tough for PEs to exit with a profit. Apart from the rupee, shares of PEbacked listed companies have been falling with slowing economy, rising debt, higher inflation and interest rates.

The investment value of Citicorp, which invested about $25 million in Suzlon Energy in December 2007 for Rs 392 apiece, with the rupee at 39.56 to a dollar, is now valued at $0.26 million, a fall of around 99%. Goldman Sachs’ investment in ICSA India during 2007-08 has eroded by 98%. The value of investments in Suzlon, IVRCL, Welspun Corp, Punj Llyod and Gokaldas Exports has declined by over 90% after PEs purchased stakes in 2007.

“There is a serious governance issue in the country right now that has led to significant deterioration of macro-economic environment,’’ a spokesperson for PE Blackstone said.

The value of a $150-million investment by Blackstone in Hyderabad-based infrastructure company Nagarjuna Constructions is now at $7.91 million now as shares tumbled by 92% and rupee by 56%. The fund invested in 2007. Blackstone, which had invested over $1 billion in India, says there are still opportunities to invest.

“Many sound companies are trading significantly below book value and intrinsic value based on fundamentals,” the spokesperson said. Some consultants say PEs have a better strike rate. “I would want to see this from the other side, where at least 22 of the 52 investments are doing well and making money in today’s market. This is not a bad result,’’ says Sanjeev Krishnan, executive director and head PE advisory at Pricewaterhouse Coopers. “The question here is of the timing at which these investments were made and when do the funds seek an exit.”

Some smart PEs had timed their exits, reaping higher profits. TPG Capital sold its 10% stake in India’s largest second hand truck financier Shriram Transport Finance early this year to reap a profit of 700%.

“The advantage of being a PE is that we can time our exit when the sentiment is right. The US is a great example, where 2013 has been a terrific year for exits, especially after we stayed patient during the past few years after the financial meltdown,’’ says Blackstone spokesperson. “Globally, we have held several companies for over 10 years and in many cases we have realised 4 to 5 times our investment on exit.”

Some PE fund managers say the investment in listed companies offers at least an exit, while unlisted ones are stuck with no options as values shrinks. “The only consolation these investments in listed companies offer is that we have a ready exit option, unlike in those unlisted companies where the value erosion is on similar lines primary market has dried up,” says a PE fund manager on condition of anonymity. Only 19 companies have raised Rs 1,429 crore through a public offer so far this year compared to Rs 6,940 crore last year.