With several Initial Public Offerings (IPOs) being called off due to market volatility, private equity investors who hoped to gain by exiting through the IPO route are finding themselves at a dead end.
A report by SMC Global Securities says that 25 IPOs which planned to raise Rs 31,000 crore were called off in 2011 due to the volatile stock markets.
Data from Venture Intelligences shows that the number of PE-backed IPO exits have fallen to four for the period January to November 2011 as compared to the 22 exit deals in the same period last year.
The four deals in this year (year-to-date) amount to $221 million. The 22 deals amounted to $1,969 million in the corresponding period last year. The private equity investors in this year's IPOs were Clearwater Capital, Goldman Sachs and Macquarie.
They were lucky that the IPOs (that they backed) of Flexituff and PTC India Financial Services were launched
IPOs which may provide an exit route to many PE investors are now no longer something that the investors can rely on. This may be true especially for investors in the real estate and power sectors.
This year, many companies from these sectors — such as Lodha Developers, Lavasa Corporation, Ambiance Real Estate, Jindal Power and Sterlite Energy — have called off their IPOs, according to SMC Capital report.
Some other companies have announced IPO deferrals even though SEBI approval for their IPOs is still valid. “For instance, Micromax has already announced IPO deferral, owing to the market conditions,” said the report.
However, some private equity investors do not admit to the problems that they are facing due to these IPO deferrals. “We have a long term investment horizon and, therefore, cancellations like these don't matter to us. We can wait for one or two years and then exit when the markets are doing well. As long as the company is doing well, we don't have to bother,” said a person from a private equity firm.