PE funds lose big in listed companies

MUMBAI: Volatile capital markets coupled with high valuations have
resulted in almost 67% of the private investments in public
enterprises (PIPE) deals in 2007 ending in the red. PIPE deals are
investments made by private equity funds in publicly-listed companies,
usually through preferential allotments.

Industry experts maintain that sustained downtrend and uncertain
market conditions of 2008 have pushed the overall till-date (as on
June 10) return on PIPE deals of 2007 (on volume basis) to -5.81%.

"This can largely be attributed to two things," said Jagannadham
Thunuguntla, equity head of NEXGEN Capitals. "One, entry valuations
were on the higher side and two, under-performance of capital markets
on the backdrop of fast changing global/Indian macro factors. Also let
us keep in mind the fact that the investments happened at the fag end
of a bull market and we are looking at valuations at what seems to be
the beginning of the bear market," he added.

In contrast, a quick review suggests that IPOs/pre-IPOs of 2007
yielded positive returns as of June 10, on volume basis. It were pre-
IPO investments that showed the best returns as compared to IPO and
PIPEs.

Though on volume basis, the return till-date is in positive territory
of +3.73%, more than 50% of the number of IPOs of 2007 are still below
their issue price.

Many high-profile IPOs which attracted heavy over-subscription such as
DLF, Puravankara, IVR Prime, Edelweiss, Brigade, Omaxe, Fortis,
FirstSource, BGR, House of Pearl Fashions and Manaksia couldn't
sustain in the face bear onslaught. "In an economy which is looking at
8%-odd inflation, a 3-4% return would mean that it not covering the
actual growth rate but is reflecting sub-inflation levels," the NEXGEN
equity head adds.

Pre-IPOs are far ahead in terms of till-date-return % in comparison to
IPOs and PIPEs of 2007. According to NEXGEN, in terms of till-date-
volume-based-return, pre-IPO investments yielded an impressive
76.21%.

Industry experts believe, among other reasons, one key reason for this
could be significant pre-IPO discounts offered in pre-IPO deals to the
IPO price band. The pre-IPO investments into Mundra Port, IRB
Infrastructure, Koutons and Religare turned out to be multibaggers,
while Fortis, Shriram EPC and Mudra Lifestyle have disappointed.