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PEs opting to exit via public offers

By Reena Zachariah in Mumbai
March 19, 2007 13:21 IST
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Unlike last year when private equity participants exited through strategic deals with third party investors, this year PEs are opting to exit via initial public offerings route.

Private equity fund SIF has already sold its 2.61 per cent stake in Firstsource Solutions, when the latter came out with its IPO.  The forthcoming issue by rating agency ICRA will see IFCI and UTI-1 selling their stakes in the company.

"As the Indian capital markets are doing well we will see more and more exits happening in the country through IPOs", said Nitin Deshmukh, head, private equity, Kotak Mahindra Bank.

The exits made by private equities are directly linked to the fortunes of the capital market. PEs have big investments in sectors such as textile, manufacturing, engineering industries and these sectors will see some exits.

Going forward, sectors such as infrastructure and consumption-related industries like retail and media would also witness private equity exits through IPOs, Nitin added.

"The most common way of exit for a PE is through the IPOs. Investments made in growth sectors are structured in a manner that when the businesses grow, the exit will be after 3-5 years," said Amrish Baliga, vice-president of ICICI Securities.

Last year, Warburg Pincus LLC exited from WNS Global Services through its IPO in America for an amount close to $30 million. IDFC Private Equity also made its exit through the IPO route from GMR Infrastructure and Gujarat State Petronet for $22 million and $20 mn respectively.

A total of 29 exits by venture capitals and private equities were seen in the calendar year in the country with the maximum number of exits being made in the information technology sector, which witnessed 10 exits worth $ 380.84 million.

This is followed by the infrastructure sector, which saw nearly six exits worth $193.79 million. In terms of the amount generated, the pharmaceutical and healthcare sector saw exits worth $349.5 million, according to a study done by IVCJ Research, a firm that tracks venture capital and private equity investments in India.

TPG Newbridge exited from Matrix Laboratories by selling its 26 per cent stake in the company, in a strategic deal to Mylan Laboratories,a US-based pharmaceutical company worth $ 270 million,generating a return of 107.7 per cent was the year's biggest exit.

Another noteworthy exit was made by ChrysCapital LLC when it sold its stake in Gammon India worth $ 95.55million. Actis also sold its 6.70 per cent stake in Glenmark Pharmaceuticals to HSBC Global Investment Fund for $ 67.70 million.

"In October, 2005 ChrysCapital did a similar exit by selling 4 per cent stake in Gammon India for Rs 380 per share, bringing down its stake from 12 per cent to 8 per cenr. Moreover, its shareholding diluted to around 7 per cent subsequent to the construction major's GDR issue in the first quarter of 2006. The private equity firm finally sold its remaining 7 per cent stake, in block deals, to a FII at around Rs 525 per share in the secondary market. With its initial outlay of $ 20 million, ChrysCapital generated a sale of $ 95.55 million, a return of 4.75 times in just 15 months." IVCJ said in their research report.

IL&FS Investment Managers Limited made the maximum number of exits.They exited from Shoppers Stop, Hotel Leela Venture,Tejas Networks,Pipavav Railway Corporation and Sasken Communications

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Reena Zachariah in Mumbai
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