75% PIPE deals giving negative returns

An analysis of 63 PIPE deals stuck last year shows that infrastructure sector has been the worst performer.

In 2007, the infrastructure sector saw PIPE deals worth Rs 5,912 crore but the marked-to-market value of these transactions has eroded nearly 50 per cent to Rs 2,967 crore as on July 7.

NEXGEN Capitals, which is the merchant-banking arm of Delhi-based brokerage SMC Global Securities, said total investment of Rs 21,857 crore in PIPE deals last year stood at Rs 19,223 crore, down 16.7 per cent.

The 63 PIPE deals cover information technology and information technology-enabled services, infrastructure, healthcare, telecom, retail, media, manufacturing, real estate and banking, financial services and insurance sectors.

Since the middle of January, the benchmark indices have lost nearly 37 per cent.

From a life-time high of 21,206 on January 10, the 30-share Sensex closed at 13,349.65 on Tuesday.

Similarly, the 50-share Nifty, which scaled a life-time high of 6,357.10 on January 8, closed at 3,988.55.

Worst deal
In December 2007, around 10 private equity investors including Eton Fund LP, T Rowe Price, Deutsche Asset Management and Citigroup had invested Rs 3,965 crore in GMR Infrastructure at Rs 240 per share in a qualified institutional placement.

The current mark-to-market value of the investment had plummeted 63 per cent to Rs 1,463 crore.

Share of GMR Infrastructure closed at Rs 86.10 on the National Stock Exchange, down 2.8 per cent from its Monday close.

Another PIPE deal which shows the impact of volatile market conditions is that of Great Offshore.

US-based private equity company The Carlyle Group had bought a 4.99 per cent stake in Great Offshore for Rs 163 crore at Rs 860 per share. The current marked-to-market value of the investment in Great Offshore has fallen 45 per cent to Rs 90.16 crore.

However, there is a silver lining to the PIPE deals story in India.

Banking, financial services and insurance, telecom, and retail are the sectors which seemed to have survived the market meltdown.

Retail was the top performer with returns of 41 per cent.

The PIPE deals in the retail sector witnessed a total investment of Rs 215 crore with the current value of the transactions of Rs 303 crore.

Industry officials are also buoyant about the potential of PIPE deals in the near future.

"Going forward, we are likely to see more of PIPE deals across sectors rather than just private equity. The valuations have become more attractive," said Ajay Relan, managing director, Citigroup Venture Capital International.

"Despite the turmoil in stock markets, a lot of activity is expected on the PIPE deals front, especially in the infrastructure space," said Axis Private Equity Chief Executive Officer Alok Gupta.