PIPE deals up 40% so far this year

So far this year, 16 such deals worth $746 million have been concluded, compared with 29 deals worth $532 million in 2014

Mumbai: Private investments in listed Indian firms have surged this year as funds bought into large non-banking financial firms and also chose to back company founders with an established track record. The surge reflects a broader pick-up in private equity (PE) investments.

Private investment in public equity, or PIPE deals as they are known in PE jargon, have increased 40% in 2015, according to data available from VCCEdge, a database of PE deal activity, and JM Financial Ltd.

So far this year, 16 such deals worth $746 million have been concluded, compared with 29 deals worth $532 million in 2014. PIPE deal volumes, however, remain below the highs of 2013 when 28 deals worth $2 billion were closed—the highest in a decade.

The surge has been led by bulge-bracket investors, including Singapore’s state-owned investment firm Temasek Holdings Pte. Ltd, Bain Capital Llc and KKR India Advisors Pvt. Ltd. Each of them have deployed at least $100 million in such deals.

Bain Capital and Temasek declined to comment for this story. KKR didn’t reply to an email from Mint seeking comment.

“We are witnessing an increase in activity in the PIPE space. These transactions are all led by a handful of large PE funds which are mostly investing in financial services firms," said Sanjeev Krishan, leader, private equity and transactions, at PricewaterhouseCoopers Pvt. Ltd, adding that sectors like healthcare have also seen interest.

Most funds are also keen to back companies with promoters who have a proven track record, said Krishan.

The surge in PIPE deal activity is in line with a broader pick-up in private equity investments on expectations of a rebound in economic growth. According to data from Grant Thornton India Llp, between January and August, PE deal activity rose almost 46% to $10.9 billion across 675 deals, compared with $7.4 billion across 388 deals in the same period last year.

Expectations of faster growth in financial services as the government pushes its agenda of financial inclusion, or taking banking services to the unbanked poor, may have burnished the attraction NBFCs hold for PE funds.

“Non-banking financial companies as an industry requires a lot of capital and there is so much under-penetration in the country when it comes to lending," said Ajay Saraf, executive director at ICICI Securities Ltd.

“NBFC as a segment has become a very attractive sector for private equity funds who are betting on the fact that as penetration in smaller cities increases, the return potential from this sector is very high," he said.

The largest PIPE deal this year has been Temasek’s $150 million investment in drug maker Glenmark Pharmaceuticals Ltd through its subsidiary Aranda Investments (Mauritius) Pte Ltd. The fund also invested $49 million in Mumbai-based Oberoi Realty Ltd.

Other big funds that have used this route include Singapore’s sovereign wealth fund GIC Pte. Ltd, which invested $109 million in Bajaj Finance Ltd in a qualified institutional placement (QIP) by the company. GIC did not reply to an email from Mint.

Last week, Bain Capital invested $107 million in L&T Finance Holdings Ltd as part of a broader deal. Bain invested a total of $200 million to buy 10% of L&T Finance Holdings, but part of this was through a purchase of shares from parent firm Larsen and Toubro Ltd (L&T) via the secondary markets.

In March, KKR along with Leapfrog Financial Inclusion Fund and Indium Fund V invested $73 million in Magma Fincorp Ltd.   

The size of PIPE transactions has also risen compared with last year, when the biggest deal was a $83 million investment by Apax Partners Llp in Cholamandalam Investment and Finance Co. Ltd.

“This year, the average transaction sizes have moved up substantially and these funds which generally stay away from QIPs are actively looking at public markets to strike deals. Valuations have not yet tapered off as compared to last year but, unlike last year when tech deals were more buoyant, this year most large funds are circling back to invest in large firms," said Girish Nadkarni, managing director at Motilal Oswal Investment Advisors Pvt Ltd.

After gaining 31% in 2014, the benchmark BSE Sensex has fallen 5.95% so far this year.

Anand Narayan, senior managing director at Creador Advisors India, says that assets are still highly priced and a further correction could encourage more such deals.

“We are seeing increasing activity in the PIPE space, but at current market prices, most of the companies are highly priced," said Narayan, adding that more reasonable valuations will help funds close more investments in listed entities.

Creador Capital invested $16 million in Ashiana Housing this year.

“There is greater conviction in the Indian story now and a lot of good companies are available in the listed space and foreign funds are finding it easier to invest larger sum of capital in them than look for private comparables," said V. Jayasankar, senior executive director and head of equity capital markets at Kotak Mahindra Capital.

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