The major deals in the pipeline include the $5 billion fundraising plan of Tata group for its super app business, TataNeu
India’s top conglomerates are increasingly relying on private equity funds to finance their new businesses, eschewing the debt-fuelled growth that landed many companies in bankruptcy courts in the past few years.
With the world awash in liquidity, private equity funds have stepped up to finance the requirements of large corporates, writing ever-bigger cheques. Such deals, worth around $10 billion, are likely to be sealed over the next nine months, investment bankers said.
This is a departure from a trend seen as recently as two years ago when buyout firms bet their money and expertise on helping startups and privately held firms in India take on established companies or disrupt a market. Large and diversified business groups, including the Tatas, Adani and Aditya Birla, are seeking significant equity investments from bulge bracket PE firms in a trend set in motion by Mukesh Ambani, Asia’s richest man. Ambani’s Reliance Industries has raised a staggering $15 billion from strategic and PE firms over the past year for its relatively new business units, including digital, telecom, retail.
“Large corporates have realized that running a company with investment from PEs in lieu of a partial stake is much better than running the same company with a large amount of debt in the books," said Gopal Agrawal, managing director and head of investment banking, Edelweiss. “Having lower debt helps the company’s stock perform better, and it reflects well about the promoters, increases the company’s goodwill and helps in getting a better valuation."
Most large corporates are either utilizing the funds raised from PEs to limit their reliance on borrowings or to capitalize their new businesses, perhaps drawing a lesson from the past on the perils of going on a borrowing binge. Promoters of many indebted corporates, including Essar Steel India Ltd, Bhushan Steel Ltd, Bhushan Power and Steel Ltd, Reliance Communications Ltd and Videocon Industries, have ceded control of their companies. The developments have nudged companies to lean on external equity capital.
The major deals in the pipeline include the $5 billion fundraising plan of Tata group for its super app business, TataNeu; and those of Aditya Birla Group, Adani Enterprises, Tata Power and so on.
Tata group, which has debt of more than ₹61,000 crore, recently raised ₹7,500 crore from TPG Rise Climate and Abu Dhabi’s ADQ, and is looking to use the capital to fast-track growth of its electric vehicle (EV) business.
Buyout firms are upbeat about the EV business due to its growth potential. According to consulting firm AlixPartners, EV sales may jump to about a quarter of total global vehicle sales by 2030 from about 2% now.
Soon after closing the deal for their EV business, the power business of the Tata group—Tata Power—too, has begun talks to raise at least $500 million ahead of a planned initial public offering of its renewable energy unit, the Economic Times reported earlier this month. A spokesperson for Tata Power didn’t immediately respond to a text message seeking comment.
PEs globally are especially keen to fund sustainable businesses, and Tata Power’s renewable unit is one of the largest renewable energy businesses in India with an operating capacity of 2.6GW comprising wind and solar.
Adani Enterprises Ltd, the flagship entity of the Adani Group, is in talks with several investors, including PEs, to raise around $2 billion to make Adani Enterprises a ‘sustainable’ energy major, according to two people familiar with the development. An email sent to a spokesperson for Adani Enterprises didn’t elicit a response
The Aditya Birla Group, too, is looking to sell stakes in some businesses to PEs.
Marquee PE players, including TPG Capital, Apollo Global and Carlyle Group, were in talks with unit Vodafone Idea Ltd to invest in the company’s optic fibre and data centre assets worth around $1 billion.
“Using large investment from PE players allows bolt-on acquisition opportunities and also allows it to plan for the long term, thereby helping overall value enhancement for all stakeholders, including promoters and minority shareholders. That’s why large corporates are keener than earlier to sell a partial stake in their established companies to PEs. Thirdly, large corporates have realized that it is no longer essential to maintain a large stake or too much control in a company. They are comfortable in parting with a portion of their stake with large well-known global investors, where private equities fit in quite well," Agrawal said.
Agrawal said another major reason for the increased PE activity is that several new-age internet-based businesses are growing fast.
“Both in the retail and commercial space, new e-commerce opportunities are emerging over the past 2-3 years, helping a lot of startups to record phenomenal growth. All these businesses are backed by external investors. Some of the startups have grown as big as large listed companies. The big corporates don’t want to miss the bus and want to gain command in these new-age businesses either through acquisitions or through organic routes. So, when large corporations are entering new-age businesses, due to their goodwill and past track record of building successful businesses, they are attracting more PE investments than smaller contenders," Agrawal said.
According to global financial data provider Refinitiv, since April last year, PEs have pumped in close to $60 billion through more than 1,700 deals into hundreds of Indian companies, including firms owned by large corporates and those in the listed space.
“PEs are also armed with much bigger fund corpus now as compared to earlier, and after securing a series of decent exits over the past few years, PEs are more enthused to invest in India," Agrawal added.
Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.
Never miss a story! Stay connected and informed with Mint.
our App Now!!