PE funds lose $4 bn on investment of $6.96 bn

MUMBAI: Rough market conditions saw listed company investments by PE funds (PIPEs) of 2007 and 2008 lose about $4 billion as against their total investment of $6.96 billion, indicating a current MTM return of -53.31%.

Of the 93 PIPE (Private Investment in Public Enterprise) investments during 2007 and 2008, only five investments have seen positive returns on current MTM basis.

According to Jagannadham Thunuguntla, equity head, SMC Capitals, this can be attributed to high entry valuations and tough capital market conditions. "This will probably result in private equity funds shying away from PIPEs, to unlisted company investments where there is no pressure of current MTM returns, despite attractive capital market valuations," he added.

In his report on PIPE investments of 2007 and 2008, he maintains that wealth erosion is all pervasive across sectors as none of the investments could sustain the tough capital market conditions

Due to continuous downfall and rough market conditions of 2008, the overall till date-return on PIPE deals of 2007 (on volume basis) is at -51.89% aggregating to a loss of $2.75 billion on absolute basis.

"Current MTM losses are all pervasive across industries. Only telecom is holding up better in comparison to other industries, on back of relatively better performance of investment of Temasek into Bharti. About 94% of the PIPE deals of 2007 are in negative territory, owing to high entry valuations and volatile capital market conditions," says the report.

According to him, after a very rough performance of PIPEs of 2007 in terms of current MTM values, there is no respite for Private Equity investors even from their PIPE investments of 2008.

The PIPEs of 2008 have lost about -58.49% from their investment of $1.67 billion to current MTM value of $0.70 billion, representing an absolute loss of $0.98 billion.