Private equity(PE) firms who have been largely focused on providing growth capital in India are now eyeing distressed firms, which has been a domain of the Asset Reconstruction Companies (ARCs). While some of the PE players such as Vision Global, Eight Capital and ClearWater have specialised funds, which are targeting distressed assets, other PE firms are also looking to invest in such companies during these troubled times.
According to Vision Global MD Parth Gandhi, “We’re in talks with around 10 such companies. In the next two-months we’ll be able to close in a few deals. With the current slowdown in the economy, a lot of companies have not been able to meet their growth projections and are facing an acute credit crunch. The idea of the fund is to tap such opportunities.”
Vision Global, which recently entered India, is looking to invest out of it $200-million Asian fund. Independent estimates peg the total value of the country’s distressed assets at around $60 billion. It’s not just new players who are eyeing distressed assets in the country. IDFC Private Equity CEO Louis Miranda feels, “In the past, we’ve invested in few such companies and later turned around their prospects. Though currently, we’ve not invested in any distressed company but if an opportunity comes, we’ll not ignore it.”
While fund managers say there is still lot of opportunity to invest in growing companies besides distressed firms, the slowdown in the Indian economy coupled with stock market crash early this year has already affected PE deal activity in the country. There has been a decline of more than 50% in the value of PE deals in India with only 46 PE deals worth $1.8 billion so far this year as compared to $6.9 billion in the corresponding period last year, as per the latest data from Thomson Reuters.
India occupied the 19th spot in terms of PE deal value against the United States which saw PE deals worth $68.2 billion this year. Analyst feel that this can be attributed to the high valuations that Indian promoters are still demanding despite the slackening of the economy.
However, some PE fund managers feel that the road ahead for distressed funds will not be easy as the promoters are still benchmarking their current valuation to pre-market collapse levels. “The concept is yet to pick up here and India may not prove to be an easy market for distressed funds. While few PE players invest in distressed companies, there are many structural challenges involved given the ECB guidelines,” said Babcock & Brown, MD (India), Manikkan Sangameswaran.
Source: Economic Times