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MUMBAI : Private equity (PE) firms that hoped to exit their investments through initial share sales are forced to defer their plans as volatility continues to rock India’s stock markets.

Between 1 January and 14 September this year, 29 companies chose to let regulatory approvals for their initial public offerings (IPO) lapse, data from primary markets tracker Prime Database showed. There are still 22 firms holding valid approvals, but they too will lapse by end of December if they do not list by then.

A company has to get listed within a year of getting the go-ahead from the Securities and Exchange Board of India (Sebi), or re-file the draft offer document and seek fresh approval.

Graphic by Sarvesh Kumar Sharma/Mint
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Graphic by Sarvesh Kumar Sharma/Mint

“PE-backed companies have already begun exploring alternative solutions as they are unable to rely on the IPO markets, at this point, for an exit," said Mukund Ranganathan, executive director at Motilal Oswal Investment Banking.

IPO approvals have expired for farm equipment maker Milltec Machinery backed by Multiples PE, and gaming firm Nazara Technologies backed by WestBridge Capital, among others.

Of the 22 firms that have time until December-end, there are many PE-backed firms including Advent International-backed ASK Investment Managers Ltd, TPG Growth-backed Dodla Dairy Ltd, The Rohatyn Group (TRG)-backed auto parts maker Sansera Engineering Ltd, and CX Partners and Gateway Partners-backed Mrs. Bector’s Food Specialties Ltd.

“The firms which pursued an IPO with the main objective of a PE investor’s exit will either have to opt for a private stake sale or, in the worst-case scenario, promoters will have to provide them an exit. The other option is that PE firms hold on to their stake in these firms, and explore liquidity at a later date," Ranganathan added.

In June, TPG Growth and Actis Capital sold their entire 42% stake to the promoters of AGS Transact Technologies Ltd, after the payment solutions company failed to go public in its last two attempts in 2010 and 2015. The company reapplied for a 1,000 crore IPO last year, which is set to expire on 26 October if it does not launch its IPO before that.

While lack of investor appetite is one reason for the weakness in primary markets, it is also affecting the valuation expectations of investors.

“Even though IPOs will continue for good companies, their pricing may have to be re-calibrated due to market volatility," said Nipun Goel, head of investment banking at IIFL.

“Exits via secondary deals have been a popular theme for PE firms in the past as well, when markets have been volatile. There is a large amount of dry powder sitting with PE firms and the availability of capital combined with reasonable valuations could make secondary deals with PE firms an attractive exit option," he added. Among firms that went public this year, Shapoorji Pallonji Group’s Sterling and Wilson Solar Ltd and Kedaara Capital-backed Spandana Sphoorty Financial Ltd had to slash the secondary component of IPOs by 30% against what they had planned earlier.

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