Domestic private equity (PE) firms are turning to the equity market after about a decade, hoping to raise money from the public as funds go scarce both in India and abroad.
Milestone Capital Advisors Ltd, which manages around `3,152 crore of assets in its portfolio, and Future Ventures India Ltd, the investment arm of retailer Kishore Biyani’s Future Group, have filed draft prospectuses with the Securities and Exchange Board of India, or Sebi, for a public listing of shares.
Milestone says in its draft red herring prospectus (DRHP) that it will primarily use the money raised from its initial public offering (IPO) as seed capital for a new infrastructure fund (expected to be around `800 crore) and for a small and medium enterprises fund (`250-300 crore).
Future Ventures expects to raise `750 crore from its IPO to “create, build, invest in or acquire, and operate businesses in consumption-led sectors,” it says in its DRHP, filed late August.
That’s about one-fifth of its earlier fund-raising plan. In 2008, Future Ventures had filed a draft prospectus to raise `3,700 crore, but decided against an IPO when the stock markets crashed.
Spokespersons of both PE firms declined to comment, referring instead to the DRHPs.
While PE activity has picked up, domestic firms still find it tough to raise money from investors—typically hedge funds, education funds and very rich individuals—abroad, where several economies continue to be shaky. In India, few large investors are comfortable with PEs as an asset class. “It’s taking 18-20 months to get the first closing (for a PE fund),” says Vikram Utamsingh, executive director of consulting firm KPMG India.
The only option left, he says, is for PE firms to go to retail investors through IPOs. Some are already tapping small investors for funds after lowering the minimum investment size to some `5 lakh from `25 lakh earlier.
Experts tracking PE activity in India are not sure if that’s the best route, as they fear a public listing would consume the energies of fund managers towards quarterly earnings, daily stock movements and creating quick liquidity routes. “They will make more investments in public markets than in the private market to show liquidity,” says Utamsingh. “This will keep the investors happy but goes against the private equity thesis.” Investment horizons for PE firms typically last five to six years.
Globally, the stock performance of publicly listed PE firms has been disappointing. Blackstone Group LP, one of the earliest large PE firms in the US to go public, in 2007, is trading at one-third of its IPO price of $31 (around `1,450 today). On Wednesday, the stock closed at $10.44 on the New York Stock Exchange.
Transparency, too, is an issue, says Ashvin Parekh, partner and national leader, global financial services, at Ernst and Young India.
“Whenever investments are made there are certain strategies, niche activities, which need to be kept close to the promoters and investors. The question is how much of it can be divulged once a PE firm goes public? How will the sponsor of the asset take it? Some may not like it,” he said.
But if it’s any indication of domestic potential, India’s only publicly listed PE firm—IL&FS Investment Managers Ltd—has gained some 10% this year.
The firm, listed in October 2000, has seven real estate and infrastructure funds with a portfolio worth $2.5 billion.
Milestone has a joint venture with IL&FS Investment for a real estate fund and another with Religare Venture Capital Ltd, promoted by brothers Malvinder Singh and Shivinder Singh, for education- and healthcare-focused funds. This year, it launched a shipping fund and a special situations fund as well, which are in addition to its two domestic schemes and an overseas realty fund.
Source: Livemint