Stock market slide takes toll on PE investments

By
Rajesh Abraham & Shilpa Shree
Jun 09 2008, Mumbai

With the stockmarkets continuing its downward slide, private equity investments in publicly enterprises (PIPE) have
taken a heavy toll.

Out of the 63 PE deals, at least 37 are trading in negative territory, owing to high entry valuations and volatile market
conditions, while 26 have recorded profits, according to a study by SMC Investment Solutions, a financial services
firm. The study has taken into account May-end stock prices. At current market prices, the picture is much more grim.

“Yes, the value of the deals done last year are trading below the price,” agreed Harish HV, partner at Grant Thorton
India, an accountancy firm, adding that the PE market in India has improved since March 2008.

From the peak of early January, the widely-tracked Sensex index of Bombay Stock Exchange (BSE) is down nearly
25 per cent as rising inflation, heavy selling by foreign funds and record crude prices forced investors to flee from
domestic equity market.

A big investment that turned out to be negative is Blackstone’s $155.4 million investment in Gokaldas Exports. Today,
the deal value stands at $117.46 million, down 21.5 per cent from the time of investment. General Atlantic’s $72.43
million investment at Rs 360 per share in Infotech is now valued at $ 50.35 million as the share prices are ruling at Rs
259.95 per share, which is a decline of 27.79 per cent. American Funds’ investment of $2.05 million in Infotech at Rs
325.15 apiece is currently valued at $1.58 million.

Cargil Ventures’ investment in KPIT Cummins also went into negative territory following the market slide. Its
investment of $9.54 million at Rs 128.41 per share is valued $5.44 million at the current price of Rs 76.15 per share.
This is a decline of 40.70 per cent. Another investment that has gone wrong is Sun Group’s investment in Firstsource.
Sungroup invested $38.93 million in Firstsource at Rs 85 per share, valued currently at $10.15 million at Rs 43.45 per
share, a decline of nearly 50 per cent.

Some other deals that have gone wrong include Goldman Sachs’ $1.90 million investment in Hexaware at
Rs 94.05 per share, which is now down 34.02 per cent at $ 1.21 million after the share prices of the domestic IT firm
is now trading at Rs 62.05 per share. Investments that have yielded positive returns are
Temasek’s investment in Bharti Airtel at Rs 564.89 a share with a total investment of $1,295.56 million. Today,
Temasek’s investement stands at $1,905.77 million with an appreciation of 52.79 per cent.
Among sectors, infrastructure (-30.53 per cent), healthcare and life sciences (-25.44 per cent) and media (-20.10 per
cent) have taken the top slots of wealth destructors. On the flip side, banking, financial services and insurance
(+33.99 per cent), telecom (+47.10 per cent) and retail (+83.42 per cent) sectors have created wealth for PEs as their
investments appreciated despite a fall in overall market. As per
Grant Thornton estimates, the total number of PE deals during the first five months of 2008 stands at 170, with a
value of $6.39 billion as against 159 deals amounting to $4.97 billion during the same period in 2007.