Archive for July 10th, 2009

Lack of PSU divestment roadmap stalls IPO market

Jagannadham Thunuguntla, equity head of SMC Capitals.

In the absence of a roadmap for divestment of public sector units (PSUs), many private companies that were getting ready to raise funds through initial public offerings (IPOs) may now decide to wait. The market fall on Monday (the budget day) and Wednesday has made matters only worse.

However, investment bankers see light at the end of the tunnel in the finance minister Pranab Mukherjee’s announcement on the need for mandating a minimum 25 per cent public holding in all listed companies.

“Excitement is a bit down as there is no roadmap for PSU divestment. This initiative would have created an ecosystem for several public issues of private sector companies hitting the market,” said Jagannadham Thunuguntla, equity head of SMC Capitals.

“The divestment programme is unlikely to be as effective as was expected to be before the budget,” Thunuguntla added.

However, there is an air of expectation that companies would revive their plans to float initial public offerings (IPO) once the market revives.

The falling market, post-budget, has also put a question mark on the companies that were planning to raise funds through qualified institutional placements (QIPs), is a corporate fund raising instrument that enables completion of the process within a month against four months taken for a typical IPO.

According to a report published by Enam Securities While eleven companies have raised Rs 12,000 crore through QIPs before the budget, about 20 companies are planning to raise Rs 36,500 crore through this route, post- budget.

This list is liberally sprinkled with real estate companies, which have been facing a severe funds crunch since the outbreak of the global financial crisis in September 2008.

PE investments in June quarter touch USD 1.03 bn

PE investments in June quarter touch USD 1.03 bn

PE investments in June quarter touch USD 1.03 bn

Propelled by a recovery in the stock market, private equity investment into the country shot up to 1.03 billion dollars in the June quarter, an increase of 17 per cent sequentially.

The PE firms have invested USD 1.03 billion across 54 deals during the quarter ended June 2009, a 17 per cent surge over the previous quarter, which saw 42 deals worth USD 883.97 million, according to data compiled by SMC Capitals.

“With a recovery in the stock market, PE investors have also regained confidence on the Indian firms and have started putting in money,” SMC Capitals Equity Head Jagannadham Thunuguntla said.

However, on a year-on-year basis, the number of PE deals have nearly halved in volume front and declined 69 per cent in value terms.

The June quarter of 2008 saw 84 PE deals worth USD 3.30 billion. The latest numbers take the total investments in the first six months of 2009 to over USD 1.92 billion (across 96 deals) as against the USD 7.95 billion invested (across 202 deals) during the corresponding period last year, the study indicated.

“Although the pace of investment has increased, PE funds are yet to gain last year’s momentum when the stock market was on a high growth path,” Thunuguntla said.

“Going ahead the PE investments are going to increase in India as the valuations are now at cheaper levels,” he added.

As per report by research firm Venture Intelligence, the single largest investment during Q2 of 2009 was IDFC PE and Oman Investment Fund’s Rs 600 crore commitment to QuippoTelecom.

This was followed by Norwest Venture Fund’s acquisition of 2.1 per cent stake in National Stock Exchange for Rs 250 crore.

In the June quarter, the IT &ITeS sector registered 12 deals worth USD 67 million, followed by healthcare and life sciences (with 6 deals worth USD 129 million) and BFSI (6 deals worth USD 116 million).

Some of the major PE investments made during Q2 of 2009 was Axious Investments’ USD 40 million (about Rs 200 crore) commitment to Quippo Telecom,

followed by Pangea Capital’s acquisition of stake in infrastructure firm Cobol Technologies for USD 30 million (about Rs 150 crore).

Other PE investments made during the quarter include Rs 183 crore investment commitment made by Standard Chartered Private Equity in Mahindra & Mahindra Financial Services and IDFC PE investing USD 45.30 million (about Rs 222 crore) in GMR Energy (Orissa Power Project SPV).