There’s not much impact in the number of deals either. Around 24 deals have been announced, which is nearly a deal a day. There were nearly 400 deals in 2007, a little over a deal a day. So, the current run rate is not too bad.
What is discernible, maybe, is some impact on investments in listed equity by private investment in private equity (PIPE) deals. It appears only one PIPE deal has been announced so far. According to PE investors, while stock prices have come down, promoters are not yet willing to reconcile to them.
PE investors will naturally not pay the price which was prevailing two months ago at this time. Take the case of a building material company, which was quoting around Rs 230 till two months ago. It wanted to do a PIPE deal at Rs 270 while the PE investors were not willing to go beyond Rs 250. The deal didn’t happen.
Now, the company quotes well below Rs 200. Clearly, promoters may prefer to wait at this point. If the stock does not cross Rs 200 for, say, the next 3-4 months, then they may be forced to go for a lower price.
Most companies do have expansion plans, which hopefully can’t be put on hold indefinitely. The one big PIPE deal was announced last week, where Blackstone committed $60 million to Allcargo Global. The interesting part was Blackstone agreed to pay a premium of 30% to the market price on the day of the announcement.
Blackstone agreed to pay Rs 934 per share compared with a market price of Rs 725. Allcargo had underperformed the market in recent months, having seen a high of Rs 1,300 at one point. But that was quite some months ago. So, perhaps promoter expectations had come down, otherwise they may have wanted to raise money at Rs 1,500 per share.
A premium, at this point, is a vote of confidence in the India growth story. Allcargo and its peers like Gateway Distriparks were hot stocks two years ago, but have languished since then. Both have container freight stations (CFS), as their primary business which is a bit like a commercial real estate business. You get rent for letting others use your real estate.
Few years ago, there was an acute shortage of space in Mumbai, where both these companies had CFS points. So, they made supernormal profits. Once scarcity went, margins fell sharply, and profit growth slowed down considerably. However, long-term growth potential for logistic stocks remains, and that perhaps explains the premium.
Some other deals of February also tend to suggest that the PE investors are still willing to take long-term bets. Soros’ investment in Reliance Entertainment at a reported valuation of $3 billion appears aggressive. While valuation mismatches and global issues still cloud the secondary market, it appears there are still takers for the long-term India story.
Source: Economic Times