The country’s private equity players who took advantage of the market crash by increasing stake in listed companies are in a dilemma. The share prices are, again, tumbling down — day by day.
Though PE majors like Carlyle, Blackstone, ChrysCapital and Sequoia claim to be betting on Indian market with a long-term view, they seem to be in a tight spot. The shares of the listed companies they back have declined 20-50 per cent in the past few weeks.
Carlyle, which has been on a buying spree, picking up of shares in broking firms Edelweiss and India Infoline, saw a decline of 25-30 per cent in the share price of these companies. Towards the end of October, Carlyle bought 3.85 per cent in Edelweiss from the open market for Rs 85.9 crore in a bulk deal on the National Stock Exchange, paying Rs 29.5 per share. It acquired less than one per cent in Edelweiss on November 21, by paying Rs 26.2 a share. Shares of Edelweiss slipped to a 52-week low of Rs 22.15 on November 18.
In September, Carlyle increased its holding in India Infoline to 6.7 per cent by acquiring 1.8 per cent stake at Rs 78 a share. Last month, it again increased its stake in the company, to nine per cent. On Thursday, IIFL shares touched their 52-week low of Rs 53.50 on BSE.
PE giant Blackstone has been increasing its holding in Monnet Ispat since July, at share prices ranging from Rs 478 to Rs 500. Yesterday, on BSE, shares of Monnet Ispat touched a 52-week low of Rs 350. Currently, Blackstone holds 7.1 per cent in Monnet Ispat.
“Yes, we agree that the market fall will have an impact on recovery,” notes a fund manager. “However, we remain bullish on consumption-driven India growth story. After all, our strategy will depend on a particular company and sector rather than performance of the overall market.”
Another major, ChrysCapital, has been buying shares of Nagarjuna Construction Company (NCC) — through open-market transactions ranging from Rs 55 to Rs 99 a share. ChrysCap holds 9.37 per cent stake in NCC through its entity entity, Warhol Ltd. On Thursday, the shares of NCC touched a 52-week low of Rs 35 on BSE. Blackstone directly holds 9.9 per cent in NCC Ltd.
“Nobody can really see the bottom of the market,” claims U R Bhat, managing director, Dalton Capital Advisors (India). “When there is panic, long-term investors like PE players can buy large quantity of shares at rock-bottom prices.”
Sequoia bought Ess Dee Aluminium’s 1.46 per cent stock additionally for Rs 239 per share during August. On November 18, stock touched a 52-week low at Rs 126 on BSE. A Sequoia spokesperson said, “As a policy, we refrain from commenting on public market investments.”
A managing director with an India-focused fund says his firm will continue its investments in listed space if it is convinced about the company management, growth in particular sector. “The ultimate decision depends upon our total conviction,” he adds.
Bhat echoes the same view. “If you have identified companies that will survive the present downturn and also have resources to bounce back when the market rebounds, you can increase the stake in those companies whenever there is a good opportunity.”
Compared to 3 open market transactions by PE firms in July, 9 open market deals took place in August, 3 in September, 4 in October and one deal in November, according to data from VCCedge.
However, PE firms, which do not want to pay a premium for private investments in public equity (PIPE) transactions, decreased their exposure to PIPE deals since July.
The month of June witnessed one of the largest PIPE deals in 2011, when US-based Apollo acquired stake in Welspun Corp for $290 million. As per the agreement, the fully/ compulsorily convertible debentures as well as global depository receipts issued to Apollo will be converted into equity shares of Rs 225 each. On Thursday, shares of Welspun touched a 52-week low at Rs 68.5 on BSE.
June saw 3 PIPE transactions worth $291 million. There were no PIPEs took place in July, while August witnessed one PIPE deal worth $27 million, 2 PIPEs in September worth $12 million and one PIPE deal took place in November worth mere $1.5 million.