Private equity players exit long term investment; Rs 3,600 crore worth deals so far

The rally in Indian stock markets has enticed private equity giants to book profits in some of their investments. Since the start of this year, the market has seen deals worth over Rs 3,600 crore with private equity players exiting some of their listed investments.

The Indian markets went nowhere in 2011. But as the year turned, so did the sentiment.

Private equity investors are using this turn in sentiment and markets to exit some of their long held investments particularly in Indian financial firms. Three high profile exits have happened in the past month alone.

It started with Carlyle Group selling 20 million shares in HDFC Ltd, doubling the returns on its 2007 investment. The same day, Warburg Pincus sold 17.5 million shares of Kotak Mahindra Bank, making well over 130 per cent returns on its 2004 investment. Finally, Temasek sold nearly half of its stake in ICICI Bank raking in a return of 3.5 times on their initial investment made in 2003.

According to Dinesh Shukla, Banking Analyst at Sharekhan, the selling could be because of reallocation. However, he does not think that valuations have peaked.

The decision from private equity investors to exit holdings may not be restricted to the financial sector.

A large number of private equity investors came into the Indian markets in the bull market years of 2006 to 2008. Many of these investments are now ripe for exit.

KPMG estimates that roughly $95 billion in Indian private equity investments come up for sale over the next three years.

Vikram Hosangady, Partner - Transactions & Restructuring at KPMG says that it is a combination of reallocation of funds and to generate IRRs.

“For instance, Carlyle exited HDFC, but put money in India Infoline,” he pointed out.

With markets rallying 19 per cent since the December lows, PE players may continue to exit through block deals in listed entities. But the prospects of unlisted private equity backed companies coming to back to the IPO markets still remains bleak. 

Tags: Carlyle, Carlyle Group, Dinesh Shukla, HDFC, HDFC Ltd, ICICI Bank, India Infoline, Kotak Mahindra Bank, KPMG, Private equity investment, Sharekhan, Temasek, Vikram Hosangady, Warburg Pincus