With $40 billion, private equity players hope to better 2019 investments

Illustration: Ajay Mohanty
Private equity (PE) players are expecting they will deploy close to $40 billion in India this calendar year, bettering what they did last year, despite the economy being in the pandemic grip.

PE deals worth $37.04 billion were signed last year, according to the VCCEdge data.

While big companies like Reliance Industries have not run short of PE money, nor have start-ups, which require angel funding, companies looking at venture capital (VC) funds have taken the knock, say PE experts.

Reliance Industries has shored up the numbers, with around $17 billion through PE and sovereign funds in three deals —stakes in Jio Platforms and Reliance Retail and its latest fibre agreement. Those account for over 40 per cent of all deals in 2020.

The Reliance Industries’ deals show the growing attractiveness of India to sovereign funds, especially in West Asia and Singapore. For instance, they put in Rs 60,500 crore, one of their highest deployments in just one group in the country. That accounts for a third of around Rs 2.07 trillion Reliance Industries raised in Jio Platforms and Reliance Retail and through monetising fibre.

Amit Chandra, chairman of Bain Capital, one of the large PE players in the country, said: “Despite the pandemic, we are just shy of last year’s levels of PE/sovereign fund investment of around $30 billion till October, and expect to go past the total of 2019.”

He pointed out contrary to perceptions, India had become one of the key markets for global funds to invest in.

“Last year’s tax changes and the reforms have piqued long-term investor interests.”

To delve a bit deeper, the value of angel and seed funding deals by PE has gone up over last year. In calendar year 2020, year-to-date (YTD) it has been pegged at $548 million in 578 deals compared to $527 million in last year’s in 646 deals.

However, VC funding, which begins with series A (from above $2 million to around $10 million), has been hit. According to VCCEdge, in 2020 YTD investment in VC funds has been $6.4 billion. It’s highly unlikely that it will be able to hit the $11.9 billion of last year.

The number of deals has fallen from 342 YTD in 2020 compared to 565 last years.

Deployment by PE in real estate-specific transactions has hit $2.3 billion this year to date, according to VCCEdge, compared to $2.5 billion in 2019.

With real estate adversely impacted due to the pandemic, many have seen it as a good time to get good deals.

While the number of deals is smaller this year than last year, in terms of value they are far bigger. So the average ticket size is $388 million compared to $73 million each.

PE and sovereign funds say that one key reason is that returns on investment in the country are still attractive and assets can be picked up much cheaper. For instance, a senior executive of a firm that has a large exposure to pension funds says that returns on investment in dollars in real estate are 7-8 per cent annually, translating into 10-11 per cent in rupee terms. “For most sovereign and pension funds, we see real estate provides stable returns on our investment,” said a senior executive of a PE fund.

Also new areas of PE business are opening up, such as private credit, which accounts for around 15 per cent of all PE investment.

Parth Gandhi, former senior partner and managing director of AION Capital, said: “Private credit is emerging as a key area for pension and other funds because of the stability of returns. It is today much smaller than private equity but will become larger in the years to come.”

Others say despite the pandemic most have continued to provide follow-up growth funding to companies in which they have invested on their own or by getting in strategic players.

Bala Deshpande, founding partner of MegaDelta Capital, which has assets of $350 million under management and offers growth capital, said: “We looked at all our companies where we have invested and have seen two trends -- we have done follow-up investment in many of those that have the potential to grow and need some support.”

 “And two, we saw the return of strategic investors who believe some of the companies are looking attractive at current valuations to put in money and investors are also ready to do so.”

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