PE investments fall 76% in Q3 as funds hold back cash

MUMBAI: With austerity being the order of the day, there is a clear shift in the way private equity (PE) funds are cutting deals. PE investors now prefer to sit on cash, as their existing investments may require additional funds.

This trend has resulted in a 76% fall in net PE investments in the October-December quarter, which is usually
considered as the prime time for PE investments.

The third quarter of this fiscal logged a mere 60 PE deals worth $1.1 billion (about Rs 4,840 crore), according to PE research firm Venture Intelligence.

PE investors had closed 139 deals aggregating $4.6 billion (about Rs 20,240 crore) in 2007 and 75 deals adding up to $2.2 billion (about Rs 9,040 crore) in 2006. They had invested $703 million (around Rs 2,813 crore) through 57 deals in 2005.

���Private equities now prefer to sit on cash and help companies where they have already invested, by infusing more funds. Several companies could need money in times of liquidity crunch. If the primary market does not recover, private equity firms will be forced to extend their investment horizon for some more years,��� said Venture Intelligence managing director Arun Natarajan.

According to experts, several domestic and India-focused PE funds are maintaining cash, ranging from 60-80% of their net investment pool. There are apprehensions over fresh inflows in 2009, thanks to the economic downturn and the subdued secondary market.

PE investors are looking at companies that require less funding and are not directly impacted by the economic slowdown. This explains the unprecedented rise in PE investments into agri-business. The October-December quarter witnessed five deals in the agri-business sector, amounting to $115 million.

BFSI, IT and energy sectors are placed at first, second and third positions, respectively, with BFSI bagging 16 deals worth $370 million, IT pocketing 11 deals worth $200 million and the energy sector logging six deals amounting to $130 million.

Some of the top commitments during the quarter were Azim Premji���s investment of $100 million in NSE, Blackstone���s investment (tipped to exceed $100 million) in CMS Group, Infrastructure India Fund���s investment of $90 million in Oriental Tollways and Sandstone Capital���s $75 million in SKS Microfinance.

���Promoters��� expectations have not come down to the same levels as the market decline. They are still not comfortable with market-determined valuations,��� said Axis Private Equity managing director Alok Gupta. ���The general investment environment is also not very appealing, with serious doubts being raised about growth prospects and return profile,��� he added.