PEs are India Inc’s top money-spinner
Private equity (PE) investments have, for the first time, exceeded the amount raised through IPOs.
By Gaurie Mishra, TNN |
NEW DELHI: Private equity (PE) investments have, for the first time, exceeded the amount raised through IPOs and follow-on issues in the country. While the amount raised through IPOs and follow-on issues in 2006 stands at Rs 24,100 crore, the total PE funds invested in Indian companies add up to Rs 33,750 crore. The figures reflect the growing clout of PE funds in India.
With a volatile capital market, some analysts say, PE players are ideal financiers to fund companies through their growth trajectories. In addition, mid-cap companies whose appetite for funds is growing require mentoring and growth capital - factors which PE players are better at. “PE investors are stronger hands and take a medium-term view of the company. For companies on the growth path, PE players are sustainable investors,” said
Standard Chartered Bank India private equity head Nainesh Jaisingh.
The spate of M&As by India Inc also makes the PE route the preferred mode of fund-raising. “IPO funds are largely used for organic expansion, while PEs are flexible and allow funds to be utilised for acquisitions. As the current phase of growth in the industry is driven by an aggressive acquisition strategy, PE funds are more in demand,” said ICICI Securities senior vice-president Ravi Sardana.
Experts add that the capital market, which is largely driven by FIIs, may not always be the best judge of a company’s potential. “Capital markets attract a lot of momentum-based investors, who may not fund companies when they require growth capital,” said an expert. Besides, while companies have to incur considerable regulatory and marketing costs when raising funds through IPOs, these expenses are saved in the case of preferential allotment to PE funds.
Of course, not all PE investments are meant to fund expansion and growth of companies. The PE investment in India this year also includes KKR’s $900-million (around Rs 4,000 crore) acquisition of Flextronics. There are other cases where PE funds have bought a part of promoters’ stake in companies.
With a volatile capital market, some analysts say, PE players are ideal financiers to fund companies through their growth trajectories. In addition, mid-cap companies whose appetite for funds is growing require mentoring and growth capital - factors which PE players are better at. “PE investors are stronger hands and take a medium-term view of the company. For companies on the growth path, PE players are sustainable investors,” said
Standard Chartered Bank India private equity head Nainesh Jaisingh.
The spate of M&As by India Inc also makes the PE route the preferred mode of fund-raising. “IPO funds are largely used for organic expansion, while PEs are flexible and allow funds to be utilised for acquisitions. As the current phase of growth in the industry is driven by an aggressive acquisition strategy, PE funds are more in demand,” said ICICI Securities senior vice-president Ravi Sardana.
Experts add that the capital market, which is largely driven by FIIs, may not always be the best judge of a company’s potential. “Capital markets attract a lot of momentum-based investors, who may not fund companies when they require growth capital,” said an expert. Besides, while companies have to incur considerable regulatory and marketing costs when raising funds through IPOs, these expenses are saved in the case of preferential allotment to PE funds.
Of course, not all PE investments are meant to fund expansion and growth of companies. The PE investment in India this year also includes KKR’s $900-million (around Rs 4,000 crore) acquisition of Flextronics. There are other cases where PE funds have bought a part of promoters’ stake in companies.
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India’s robust capital market is among the biggest attractions for PE players to invest here. Soaring valuations and booming stock markets have allowed PEs to book hefty profits when they exit their investments. The exits made by 15 top PE funds in India grossed $1.68 billion in the first 11 months of the current year.Download
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