Mumbai Capital

Cashing in on the way out

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Revival of primary markets after two-year lull has private equity, venture capital funds selling their shares in IPOs

he vibrant primary market in the current calendar year provided attractive exit options to many private equity (PE) and venture capital (VC) funds in the form of public issues made by companies in which such investors held a stake.

While a total of 21 companies raised a cumulative amount of Rs 13,595 crore in 2015 by way of initial public offerings (IPOs), almost 52 per cent of the money raised (Rs 7,055 crore) was on account of sale of shares by PE or VC entities, as per data compiled by Prime Database, a primary market tracker.

Private equity or venture funds invest in unlisted companies at various stages of growth and then wait for the company to make a public issue on the stock exchange platform so that they can sell all or part of their shares.

Investment bankers say that the last few years saw a very subdued primary market, due to which few companies had the courage to launch their IPOs. As a result, most PE or VC entities failed to get an exit option.

“Primary markets were almost shut for the last two to three years. Naturally, when the opportunities came this year, many of the private equity or venture capital funds that stayed invested for all these years triggered such offers,” says Subhrajit Roy, Associate Director and Head, Equity Origination, Kotak Investment Banking.

In most cases, the investors have not fully exited and have kept the option of monetising the balance equity after the shares become publicly traded stock, he adds.

While there have been 21 IPOs in the current calendar year, there were only eight and six public offers in 2014 and 2013, respectively. In 2012, only 12 companies launched their IPOs.

The last time the equity markets saw such a vibrant primary market was in 2011 when a total of 41 IPOs featured inthe capital market.

Some of the prominent PE/VC funds that sold shares as part of the IPOs this year include Blackstone Capital Partners, JP Morgan Mauritius Holdings, Wagner Ltd, Westbridge Crossover Fund LLC, Norwest Venture Partners, India Enterprise Development Fund and 3I Research Mauritius Ltd, among others.

Incidentally, of the total 21 IPOs this year, only three issuances – Coffee Day Enterprises Ltd, Manpasand Beverages Ltd and MEP Infrastructure Developers Ltd – saw the companies coming to the capital market to raise fresh capital.

Simply put, fresh capital refers to the fact that the funds raised would be utilised by the company for expansion, working capital and growth. The amount raised by sale of shares by PE or VC goes to the investor directly, and the company does not gain anything.

Interestingly, investment bankers say the trend also denotes that fundamentally strong companies are coming to the capital market, where the purpose is only to give an attractive exit to the early-stage investors.

An investment banker who was part of one of the recent healthcare issues said, This trend has also led to the fact that IPOs are doing well as companies are strong fundamentally with low debt and high cash.

"In the recent past, we saw companies from the consumer healthcare sector where the company did not need capital but investors got an exit. Based on the IPO pipeline, we expect this trend to continue for at least a year or 18 months.”

In December, three companies from the healthcare sector launched their IPOs and all were offered for sale by promoters and other investors, who were looking to make a partial exit.

While both Dr Lal Pathlabs Ltd and Narayana Hrudayalaya Ltd raised more than Rs 600 crore each in the IPO, the issue size of Alkem Laboratories Ltd was pegged at Rs 1,346.62 crore, as per data from Prime Database.

Also, of the 18 companies that got listed on the stock exchange this year, 10 are currently trading above their respective issue price, as per the latest data from the National Stock Exchange (NSE).

Interglobe Aviation Ltd, which manages private carrier Indigo airline, was the largest IPO this year, raising Rs 3,017.14 crore while issuing shares at Rs 765 each. On Monday, the shares closed at Rs 1,079.25 on the Bombay Stock Exchange.



52% of the money raised (Rs 7,055 crore) was due to sale of shares by

PE or VC entities



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Printable version | Jan 24, 2020 7:02:47 AM | https://www.thehindu.com/news/cities/mumbai/business/cashing-in-on-the-way-out/article8016628.ece

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