Contrary to popular perception, the past five months — for all the turbulence in the stock market and subsequent valuation crisis — have been the best times for private equity in India. The private equity sphere between January and May witnessed as many as 151 deals aggregating to $5.5 billion (or Rs 23,100 crore) as compared to 140 deals totalling $4 billion (or Rs 16,400) during the same period last year, according to PE research firm Venture Intelligence.
The rise in number of deals is attributed to availability of assets at lesser prices, lowering valuation expectations of promoters and rising costs of borrowing.
“Until last year, the focus of private equity investors was on infrastructure service providers. The focus is now slowly shifting to infrastructure builders,” said Arun Natarajan of Venture Intelligence, a private equity research firm. According to Mr Natarajan, the presence of several offshore dedicated infrastructure funds is another reason for rising private equity interest in infrastructure.Investments in real estate, IT/ITeS, mobile VAS (value added services) and healthcare have slackened during the considered period.
If one looks into the segment picks of private equity investors within the infrastructure space, the first five months of this year witnessed 11 deals in energy segments worth $990 million ($45 million last year), 8 deals in telecom space worth $1,270 million ($18 million last year) and one deal in aviation space worth $10 million ($71 million last year).
“Promoters have become a bit more considerate with respect to lower valuations. One should also understand that credit is becoming more dearer for promoters. Not many promoters can halt their expansion plans for the want of money,” said Axis Private Equity managing director Alok Gupta.
According to experts, the impact of inflation touching a 13-year high at 11.05% will have minimal impact on investments in infrastructure as deferring such projects would be even costlier. India is scheduled to spend $500 billion to develop various infrastructure projects, experts said.
Globally, infrastructure fund-raising by international real estate private equity funds has been brisk, with as much as $130 billion raised over the last two year, according to estimates. A large percentage of these funds raised are focused outside of the US for investing in emerging markets such as India and China.
Renewed interest in infrastructure space has seen fresh fund raising of up to $8 billion in the pipeline this year with financial entities such as State Bank of India (SBI), Australia-based Macquarie Capital Group, the UK-based 3i Group, the US-based Blackstone Group among others, chipping in.
“Private equity investors were waiting for a correction to happen. Now that asset prices have cooled-off a bit, we’d see more deals happening in the coming months. They have got multiple options to invest these days,” said Clearstone Advisors’ director Rahul Khanna.