$30 billion of PE investments ripe for exits: Grant Thornton

About $30 billion of private equity (PE) investments made during the peak of the previous bull market in 2007 and 2008 are due for exits, consultancy firm Grant Thornton has said. In 2007, PE firms had invested $19 billion in Indian companies, the highest so far, followed by another $10.6 billion the next year. Typically, such investments are for five-eight years. Experts say a robust secondary market and ample liquidity could provide PE investors a window to cash out through initial public offerings (IPOs).

"PE exits are expected to surge in 2015, as the investment window of five-eight years has already passed for many of the investments and exits are overdue," said Harish HV, partner, Grant Thornton India. "While capital markets and IPOs seem to look up, the secondary sale route will continue to be the most preferred for exits."

In the past year, the Indian market has rallied about 40 per cent. However, the IPO market hasn't seen any significant issuances. In the past year, five companies have raised a total of Rs 1,200 crore through IPOs. Investment bankers say many companies, including PE-backed firms, are readying themselves to enter the market with public issuances. "An active IPO market is needed to provide an exit opportunity to PE investors. The IPO market has been dry, but there is no dearth of money. Issues at right valuations will attract investors," said Harish.

Of the $30-billion PE investments made around seven years ago, about $10 billion were in the real estate and infrastructure sectors, which have seen a lot of erosion of wealth and haven't yet regained the valuations they recorded during the previous market peak. Also, forex losses on these investments are huge, as the rupee stood at about 45/dollar in 2008, against about 60/dollar now, depreciation of about 30 per cent.

"For these investments to deliver positive returns, they should have grown at a compounded growth rate of about 40 per cent. This is highly unlikely and, therefore, most of the investments might be in losses," Harish said. Despite the losses, PE investors would still prefer their investment companies to be listed, as this would provide much-needed liquidity and lead to new opportunities, he added.