Private equity investments in listed firms have suffered a loss of as much as $850 million so far this year amid continuous downfall and tough market conditions, a latest study reveals.
An analysis of private investment in public equity in 2007 shows that these deals in the country have lost funds to the tune of $850 million till July 14 this year.
The loss can be attributable to high entry valuations and the downward revision of risk appetite of the capital markets this year, NEXGEN Capitals, the merchant-banking arm of brokerage firm SMC Global Securities, said in its latest report.
Overall till-date-return on PIPE deals of 2007 on volume basis has declined by 16.08 per cent, the report added.
An industry wise return percentage so far this year highlights that 'wealth creation is highly imbalanced in different sectors'.
In IT and ITeS sector, there was sharp dip in current mark-to-market values of around 41 per cent in PIPE deals of 2007. While, in infrastructure sector the decline was 52 per cent, in healthcare 44 per cent and in manufacturing 34 per cent.
Real estate sector also witnessed a sharp decline of 46 per cent in the values so far this year largely due to correction in some real estate pockets in the country and worsening capital market perception of the same.
Though PIPE deals performance in real estate sector has disappointed on capital markets, realty companies overall financial performance is still encouraging despite tough real estate markets and slowing economy, the report said.
Barring BFSI, telecom and retail sectors, all other segments like IT and ITeS, infrastructure, healthcare and life sciences, manufacturing and real estate reported negative returns.
HDFC, Bharti and Provogue deals in BFSI, Telecom and Retail segments respectively stood out the volatile capital market conditions.
While, the PIPE deals in BFSI sector have yielded an overall marginal positive return of 8 per cent so far this year, the retail sector gave positive returns (43 per cent) on current mark-to-market basis.
In telecom sector, the Tamasek-Airtel deal was the largest PIPE deal of the year 2007. Besides, the deal was also an out-performer in many respects as compared to all other PIPE deals of the year.
Despite tough capital market conditions and the slowing economy, Bharti Airtel has done well both in financial performance and in the capital markets, the report added.
Retail sector outperformed largely because of Provogue, which is driving the current MTM return of the sector significantly.
Although overall return of Retail sector is in positive territory, both financial and capital market performances of other PIPE deals in retail sector such as Archies, House of Pearl Fashion and Vaibhav Gems have been far from impressive, the report said.
Some PIPE deals, however, have reported healthy sales and profit after tax growth, the report said, adding 'on the backdrop of fast worsening macros such as slowing economy, increasing oil prices, inflation and interest rates, it can be challenging for these PIPE deals to sustain this financial performance going forward'.
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