Private equity firms cash in on equity boom

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Private equity (PE) investors have sold shares worth over Rs 12,700 crore on the stock exchanges in January-June by way of secondary transactions as the Sensex hit an all-time high on Thursday.

This is a record by PE investors for any six-month period and a five-time jump from Rs 2,600 crore of exits through such sales in the corresponding period last year. 

PE investors had sold Rs 11,425 crore of shares on the stock exchanges in 2016. 

Data from management consulting firm EY also show the number of such transactions for the first six months of this year rose to 61 from 25 in the corresponding period last year.

“There was hardly any liquidity in the market till 2014. But after the Narendra Modi-led government was elected, markets started de-frosting and now they are on a boil,” said Raamdeo Agrawal, co-founder and joint managing director, Motilal Oswal Financial Services. “Valuations, in fact, are better than what PE investors ever thought possible. So it is a great time for them to get out from whatever they had bought earlier,” he added.

The largest exit through a secondary sale on the stock exchanges was by KKR & Co, which sold 7.5 million shares in Dalmia Bharat worth Rs 1,538 crore in April on an investment of around Rs 600 crore in 2016, a 150 per cent return in 14 months. 

It is this kind of return from India that helped the US-based private equity giant raise a record $9.3 billion in its third Asia-dedicated fund last month. It could invest about one-fourth of this fund in India. 

“The macroeconomic triggers are very encouraging for investment,” said Sanjay Nayar, chief executive officer, KKR & Co India. “Political will is significantly higher, and the government is looking to provide the right kind of stimulus, which will have multiplier effects, especially for private capital providers,” he said.

The rally in the market also provided an opportunity to Providence Equity Partners to make a multi-bagger exit on its 2006 investment in Idea Cellular. The US-headquartered PE major sold its last tranche of shares worth Rs 1,288 crore in Idea Cellular in February.

Providence had picked up a 15 per cent stake in the Aditya Birla Group's telecom service provider for Rs 1,800 crore in 2006. It sold the stake in two tranches, Rs 616 crore in 2014 and Rs 1,383 crore in 2016, before its final exit in February.

Other PE exits on the stock exchanges this year include the Carlyle Group selling its entire 8.2 per cent stake in Edelweiss Financial Services in March for Rs 870 crore. The fund tripled its investment, which was made between 2011 and 2014.

In addition to secondary market transactions on the stock exchanges, PE investors also made Rs 2,685 crore of exits through six initial public offerings (IPOs). According to market data provider Prime Database, this is slightly lower than Rs 2,993 crore through six IPOs in the corresponding period of the previous year. 

The largest exits worth Rs 322 crore was by Everstone Capital through the IPO of publishing company S Chand & Co. The AU Small Finance IPO also saw International Finance Corporation making a Rs 268 crore exit. 

"PE firms with a track record of exits and returns are now able to raise larger funds and consequently invest in bigger deals," said Mayank Rastogi, partner, transactions and private equity, EY. "In the last six months, we have seen traction for big-ticket investments as well as buyout deals," he added.

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