Still on the street

The slowdown on deal street is palpable and no one is likely to deny that. Take a look at the scenario—private equity deals are being called off, companies are unsure about their IPO plans and activity with respect to M&A remains pretty lukewarm.

This is broadly the situation but the symptoms were perhaps felt after the $3-billion (Rs 12,000-crore) Reliance Power public issue in January. The fact that a large amount of liquidity was sucked out of the system and that the stock is still quoting below its offer price of Rs 450 have hardly helped matters.

Data released by Thomson Reuters indicates that just $67.7 million (Rs 270.8 crore) was raised through the primary market (in April 2008). This was from two issues and, worryingly, this has been the lowest volume in April since 2003. Interestingly, India is placed fourth globally as far as money raised from IPOs between January and April is concerned. That figure is just under $5 billion (this in-cludes fresh issues, follow-on offerings and convertibles). However, if the $3 billion raised through Reliance Power’s IPO is removed, the story reads very differently.

Bankers admit that the situation is looking grim and emphasise the need to look at options quickly. “Companies are now hoping to see a revival of the primary markets in the second half,” says Ravi Sardana, Senior Vice-President, ICICI Securities. The fate of some key public issues like JSW Energy and Reliance Infratel remains uncertain; these companies have filed their offer documents with the Securities & Exchange Board of India (SEBI). Clearly, an unpredictable market is not something that investors are comfortable with, which means any public issue could well look expensive.

“Valuations have become a big issue for any transaction, be it IPOs, private equity or M&A ,” adds Sardana. The private equity story is also not looking that great; in fact, some key transactions have been actually called off. These include ICICI Ventures’ decision to call off its plans to invest a significant $800 million (Rs 3,200 crore) in Jaypee Infratech and Indivision India Partners deciding against making a $62.5 million (Rs 250 crore) investment in Dish TV. That’s not all.

Real estate company Akruti City (formerly Akruti Nirman) was all set to get a fund infusion of Rs 1,500 crore from Citi Venture Capital International and AIG. But that deal is also off now. Vimal Shah, Managing Director, Akruti City, in a statement to the bourses attributed the development to “the delay in receiving approvals coupled with uncertain market conditions”.

According to Puneet Bhatia, Managing Director, TPG Capital India, the concern is on two counts. “One, these deals being delayed or aborted are causing serious problems for the companies that are in the midst of capex programmes. Second, there is some risk of reputational damage for the PE industry if committed deals are called off only on account of the market correction,” he says.

Finally, on the M&A front, the story has not been very different. A Mumbai-based banker maintains that this year will be difficult for crossborder transactions. “Deals in sectors like automotive and manufacturing have been put on the backburner and it will be a while before a huge buyout is announced,” he says.

— Krishna Gopalan