MUMBAI: Private equity funds are looking to list their portfolio companies on overseas stock exchanges as the volatile Indian stock market offers them lower returns.
“We have made structures for some of our portfolio vehicles in such a way that the listing of the holding company on the foreign stock exchanges becomes easier,” says Parag Saxena, founding general partner and CEO at PE firm New Silk Route (NSR). “If the foreign vehicle or the foreign holding company holds substantial assets, then a global listing is possible.”
Ascend Telecom Infrastructure, Reliance Infratel, Aster, Coffee Day Resorts, KS Oils and 9X Media are some of New Silk Route investment companies.Asia-focused New Silk Route has been investing since 2006 and manages $1.4 billion.
“There are quite a few Indian companies that are looking at overseas listing now,” agrees Muneesh Khanna, senior partner at M&A and PE consulting firm Grant Thornton.
Pension funds, family offices and endowment funds which invest in PEs known as limited partners (LPs) in industry parlance, who are seeking 20-22% returns are putting pressure on fund managers.
On March 13, Apax Partners, which purchased Patni Computers jointly with iGate last year, transferred its stakes owned by its two funds into an another fund owned by them. A 10.48% stake through Apax Mauritius FDI One Ltd and a 2.19% held by Apax Partners Europe Managers until December 31, 2011 have been sold to HSTN Acquisition FII Ltd, a sub account of Apax Partners Europe according to Securities and Exchange Board of India. Both PE and Apollo Hospitals did not give reasons.
“Any PE firm that has crossed the seven years threshold will face investor pressure,” says Sunil Rohokale, managing director and chief executive officer at asset management firm ASK Investment Holdings. “And the investments of 2005-06 will complete a cycle of funds.”
Fund managers assure their investors returns after a investment period of 7-10 years. “A promoter will hold on to the company if he doesn’t get a good pricing (valuation) but PEs cannot do that,” says Saxena of NSR.
There have been some examples of companies listing on foreign bourses for PEs to exit.
Ahmedabad-based chemical maker Meghmani Organics was the first Indian company to be listed on the Singapore stock exchange in 2003 for its PE investor Electra Partners to sell stake. India-based online travel portal MakeMyTrip listed on the Nasdaq Stock Exchange in 2010 paving the way for a partial exit of some of the PE investors. Some PE reinvested more money in the company after it sold some shares in the public offer. Venture capital funds SAIF Partners, Helion Ventures and Sierra Ventures reinvested in the travel portal.
PE fund managers say stock exchanges like Nasdaq, Singapore stock exchange or Alternate Investment Market, a sub-market of the London Stock Exchange have greater appetite for some of the Indian companies.
“Exits via overseas markets like Nasdaq and Singapore will be successful if the sectors that the companies belong to are in demand there,” says Dhiraj Poddar, director at PE firm TA Associates Advisory. “For example, technology and new age businesses could look at listing in the US.”
“The performance of probable listing can be judged by the performance of the comparable companies on that market,” says Saxena of New Silk Route. “Only highly specialised or niche companies can make a mark in overseas stock markets.”
“When the PE firm makes an investment, they look at the best value for an exit that can be an Indian or overseas listing or a strategic sale,” says Khanna of Grant Thornton. “There are constraints on going abroad in terms of getting the right structure but, there are quite a few businesses where the structure allows for overseas listing.”
PE firms do create a structure for an overseas listing in Business Process Outsourcing companies like WNS Holdings and Genpact which generate more appetite for those shares.
Some Indian companies are looking to list on overseas markets. “These are all mature markets and the understanding of the sector is very in-depth,” says Aparup Sengupta, managing director and global chief executive officer at Aegis.
“For top-notch firms, the story would be understood better overseas,” says Shivani Bhasin Sachdeva, chief executive officer at PE firm India Alternatives.
However, challenges to listing overseas are many. “Listing in another geography means the accounting system changes which can pose an issue,” says Saxena of NSR. “Size and structure does matter when it comes to raising funds overseas,” says Sachdeva of PE fund India Alternatives.
Some dual listings have not given fair returns to investors. “Dual listing has not worked very well for many companies,” says John Levack, managing director at PE firm Electra Partners Asia, which listed its portfolio company Meghmani Organics first in Singapore and later in India.
“Deep understanding of the foreign investor is required for exits through that market,” says Gopal Srinivasan, chairman and managing director at asset management firm TVS Capital Funds which is in works to raise Rs 500 crore from Indian investors. “Understanding the asset and its demand in the market can happen only in very specialised cases.”
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