Private equity bets on Indian companies fail

The market meltdown since its January 8 peak has made private investments in public equity (PIPE) unprofitable as 2007's deal size of $5.31 billion is currently valued at $5.29 billion.

Of the 65 companies that offered placements through PIPE in 2007, as many as 43 have posted negative returns of 37.8 per cent. The rest 22 investments have, however, turned profitable with an average return of 39.5 per cent.

The PIPE data available with Business Standard Research Bureau and information from SMC Global Securities show that banking and finance, telecom and retail sectors have created wealth while technology, infrastructure, healthcare, media, real estate and manufacturing sectors have posted negative returns.

An Analysis by SMC Global Securities shows that wealth creation has been highly imbalanced within the banking and finance sector with HDFC, Centurion Bank and Citi Union Bank paying handsome returns while Development Credit Bank, ING Vysya, South Indian Bank and Yes Bank posting negative returns.

Of the seven deals in the real estate sector, five are profitable while two made losses. Similarly, of the 17 deals in manufacturing sector, 13 reported loss. That apart, nine out of the 15 deals in banking and financial services, four of seven in infrastructure and two of eight in technology are currently profitable.

Among the PIPE investors, only Temasek Holdings met with 100 per cent success from investments in Bharti Airtel and GL Hotels. Both Bharti and GL gave Temasek over 45 per cent returns each.

Blackstone Group fared badly with its all four investments fetching negative returns while Citi group, Goldman Sachs and Morgan Stanley met with partial success. The trio had made three investments each and each of them made profits in only in one.

IFC suffered the most with six of its seven PIPE deals making losses. Oriental Global earned 100 per cent in India Infoline while they saw value erosion of 38 per cent in Yes Bank.

Carlyne Group made money out of HDFC deal while losing in Great Offshore investment. Fidelity International lost in BAG Films and House of Pearl Fashion, but made good money from Provogue deal.

The investments proved disastrous in Anant Raj, Gokaldas Exports, Havells, Vipul, First Source and Vaibhav Gems.

WHAT IS A PIPE DEAL?
When companies want to raise funds by selling equity and when those equities are purchased by private investment firms, mutual funds or other qualified investors at a discount to the current market value, is a PIPE deal.

There are two main types of PIPEs - traditional and structured. A traditional PIPE is one in which stocks, either common or preferred, are issued at a set price. A structured PIPE, on the other hand, issues convertible debt (common or preferred shares).