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IPO is not a great deal for PE investors in Bharti Infratel

Another PE major KKR had made investment worth $250 million in 2008

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The Initial Public Offers (IPOs) always remain the first and the best exit route for private equity investors. However, investors in have nothing to cheer when Bharti is launching one of the largest IPOs in India to raise about Rs 4,500-crore this month.

The largest private equity investors- Temasek, KKR, Goldman Sachs, AIF Capital, Citigroup had made investments worth about $1.25 billion in
2007 by acquiring about 14% in Bharti Infratel at a price of Rs 220 a piece. However, the fact that the price of Rs 210-240 for shares of Bharti Infratel will never offer a decent margin for their 5-year old investment in the domestic telecom giant, has pulled back the investors in participating in the proposed IPO.

Bharti Infratel plans to raise about Rs 4500 crore through the IPO. The 4 PE investors who are selling part of their stake in are
Compassvale Investments, an arm of Temasek which holds about 5.17%, Towers Company (2.59), Millenium Mauritius 1 Ltd (1.03) and AIF Capital Telecom Infrastructure (1.03). Post issue, stake of PE investors will come down to 3.18%, 2.39, 0.95 and 0.95
respectively. Other investors who sell their part stake are GS Strategic Investments, arm of Goldman Sachs which holds 1.03%,
Hedge fund Eton Park's Anadale Ltd (1.03) and a unit of Japan's Nomura (0.52).

"The regulatory hurdles have hit the telecom industry very much, which is reflected in the proposed price of Bharti Infratel shares. The
investors who had bought shares at Rs 220 five years back can wait for a price hike after an year of IPO launch. Also, the 10-15%
price movement at the time of listing will also bring benefits for them, " said an investment banker who is involved in the IPO.

After the IPO, Bharti Infratel will have 188 crore outstanding shares. At the maximum price of Rs 240 a piece, the company is valued at Rs
45,120 crore (Around $8.2 billion). In December 2007, when a clutch of investors bought stake in in Bharti Inftratel, the company had
informed that the enterprise valuation had been agreed to be in the range of $10-12.5 billion.

Another PE major KKR had made investment worth $250 million in 2008.

However, PE fund managers believe that there is no room for concern over the current price band. "This is the best company in its industry and we are very much confident on Bharti Infratel's performance. Also, we are not in a hurry to exit the company can wait for a couple of  years," said one of the PE investors in Bharti Infratel.

A report from Edelweiss Securities said, "Based on FY12 EBITDA and the upper end of the issue price of Rs 240, the company is valued at an EV/EBITDA of 13 times." It is learnt that 13 times EBIDTA is less than
that of global peers.

The uncertainties over regulation, after Supreme Court made its verdict on 2G licenses, made the telecom sector one of the worst
sectors as far PE investments are considered. In recent past, no major deals did take place in Indian telecom space.

The talks of Anil Ambani-owned Reliance Communications, with PE majors such as Carlyle and Blackstone to sell its tower arm- Reliance
Infratel, did not materialise so far. RCom was looking for a valuation of Rs 15,000-20,000 crore for its 95% stake in Reliance
Infratel.

After the Supreme Court verdict came on 2G licenses last year, the PE deals in telecom sector had fallen drastically. Year 2011 witnessed 6
deals worth mere $50 million against 6 deals worth $483 million that took place in 2010.

The year 2007 when Bharti Infratel received PE investments worth $1 billion, telecom sector witnessed largest size of deals - 13 PE deals
worth $3.5 billion. The Year 2008 also witnessed 15 deals worth $1.4 billion, according to data from VCCedge.

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