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PE exits worth $2.5 billion caught in IPO quarantine

About $2.5 billion worth of private equity exits — some involving Blackstone, the world’s largest alternate asset manager, blue-blooded Wall Street investor Warburg Pincus, Silicon Valley poster boy Sequoia Capital, or buyout group Advent International — are on hold after over two dozen Indian companies postponed their public issue plans amid sharp fall in the equity markets caused by the Covid-19 outbreak.

“First, companies will have to reopen post-lockdown and it may take some time for them to return to normal operations,” said Ravi Sardana, senior EVP – Investment, ICICI Securities. “At this point, it is difficult to predict demand and fix the valuation. Issuers will have to wait for confidence to return to the market.”

At least Rs 40,000 crore worth of public issues were supposed to hit the primary market between mid-March and December. However, the Indian primary market is in danger of grinding to a complete halt for 2020.

Given the current situation, there is uncertainty over when normalcy will return and companies and investors are trying to conserve cash, said market participants.

“Capital markets have taken a beating, and therefore, it may become very difficult to launch IPOs in this market as valuations will remain a challenge,” said Nitish Poddar, partner and national leader, private equity, KPMG India. “In the very short term, it may be a little difficult to launch new public offerings but things should improve over the next six to nine months. If generally the capital markets bounce back, both PE exits and other IPOs will come back in play.”

Private equity funds eyeing exits through IPOs include Blackstone from Mindspace REIT, Warburg Pincus from CAMS, True North Fund from Home First Finance,TPG Capital from Shriram Properties, Everstone Capital from Burger King India and CX Partners from Barbeque Nation Hospitality.

According to merchant bankers, almost all companies getting approval from the market regulator have postponed their offers by a few months, citing the lack of appetite among investors because of higher market volatility.

Equitas Small Finance Bank, which planned to raise about Rs 1,000 crore, deferred the launch of its initial public offering on March 18, citing weak market conditions due to the coronavirus outbreak.

Antony Waste Handling Cell withdrew its IPO after the offer failed to receive the requisite subscription even after extending it to March 16. It was the first mainboard IPO of the year to go unsubscribed.

“Also, a number of quality stocks are available cheaper in the secondary markets, giving investors enough to choose from,” Sardana said.

So far in 2020, only SBI Cards was able to raise about Rs 10,340 crore through an IPO compared with Rs 12,360 crore raised by 16 companies in 2019. In 2018, 24 companies raised about Rs 31,000 crore through IPOs.


April 06, 2020

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