Not so long ago, the private equity (PE) fund community was like the Indian cricket team whose performance was commendable. Not only were they striking deals at a fast pace but their investment figures too were mind blowing. This (scenario) has changed. The current global meltdown propelled by sub-prime concerns has left its mark on the Indian market too, which is also evident in the number of private equity deals slowing down.
Industry experts say unlike in the past when term sheets were signed in six-seven days, the duration has now increased to a month. Fund managers are taking a longer time to make up their minds on investments. They are also agonizing over what valuations ought to be. Some are even backing out of deals.
For instance, Indivision, a part of the Future Group backed out of an impending deal with DishTV after signing the term sheet. Sources said, this was because valuations were driven down. Then, sources added, there is the case of General Atlantic Partners backing out of Essar Power, once again, after signing the term sheet.
Also, some firms are moving away from plain equity deals to structured ones to protect itself from the market downside. Not just that, they have started to ask for collateral on their investments. Also, the return expectations from high yield structured deals have gone up from 15-18% to 20-25%, a banker explained. This is because in a bad market, investors want to ensure that if the slide continues, there is enough buffer on the upside to protect their investments.
The fund community comprises of India-dedicated funds (amount earmarked only for the Indian market), global funds (where India is part of its global portfolio) and hedge funds and proprietary funds (firms investing from their own balance sheet).
Says Amrish Singh, head-private equity at Enam Securities, “Post the sub-prime scenario, there is a slowdown in private equity deals. The span to cut a deal has also increased.”
With most global financial services firms, particularly the US-based ones going through a tough time, sovereign wealth funds from the Middle East are stepping in and increasing their asset allocation for markets, Singh added. The Middle East-based funds favourite picks currently are real estate and infrastructure.
Source: Times of India