As the equity markets continue to drool in shadiness, corporate companies wishing to raise funds have started opting for private equity investments putting aside their plans for initial public offering.
Companies such as Sahajanand Laser Technology Limited, Rolex Rings, John Energy Limited and Corrtech International Pvt Ltd have raised money from private equity investors over the past few years.
Earlier, all these companies wanted to hit primary market for fund raising. M.M Khurana Engineers, too, dropped public issue plans and opted for bank loan to fund its projects.
John Energy Limited, a company engaged in shore drilling and extraction of oil and gas, avoided tapping share markets and raised money from private equity partners.
Sage Capital invested $20 million in the company in 2010. John Energy had plans to go for Rs 100 crore (Rs 1 billion) IPO in 2008.
In 2006, Rare Enterprise had pumped in $11 million in John Energy.
"We were planning to enter the capital markets during 2007-08 to raise around Rs 100 crore (Rs 1 billion) to fund our projects, including specialised projects and medical equipment projects. But the markets turned unfavourable and we chose venture financing from the Gujarat Venture Finance Limited.
The investment partly met our funding requirements, but now we are looking for more financial investors by way of private equity for the remaining projects," said Arvind Patel, managing director, Sahajanand Laser Technology Limited -- a laser systems maker in Gandhinagar.
The company is scouting for the financial investor for the Rs 100-crore solar thermal systems project in Gujarat.
Similarly, Rajkot-based manufacturer and supplier of forged and rolled rings, Rolex Rings, which planned IPO in 2007, chose PE route for fund raising.
The company diluted 45 per cent equity to New Silk Route PE Mauritius LLC, a PE firm, for $38 million.
Also, Corrtech International Pvt Ltd, engaged in the field of underground pipelines and city gas distribution, raised funds from Axis PE by diluting 26 per cent in the year 2008 and 2009.
Some of the companies have even started opting for bank financing over the IPO. An Ahmedabad-based infrastructure company, M M Khurana Engineers took bank loans to meet fund requirements for its one of the BOT projects.
"We were awarded an infrastructure project 3-4 years back and required to raise funds for our capital requirements. But the markets were weak then, hence we went to banks and raised loans for the project.
"We do not require further fund raising as of now," said Ashish Khurana, managing director of the company ruling out any possibility of IPO in near future.
The trend of corporates choosing private equity investors over IPO has become noticeable in recent times due to the benefits attached with private financing.
"The need for private equity was rising among the corporates, as the present market conditions were not conducive for the IPOs," said Ritesh Adatiya, associate director, corporate finance advisory, BDO Consulting Pvt Ltd.
"Unlike public investments, private equity comes with veto rights and more importantly it inducts 'Talent' and 'Strategy' in a closely held company.
On the contrary, the IPOs require higher level of compliance due to the involvement of public money, while quarterly performance pressure will also be high in case of IPO, failing to which company's share prices will suffer.
To meet these short term interests, companies may lose out on long term goals. This is not the case with private equity investments.
Echoing similar sentiments, Sanjeev Shah of Shah Sanjeev & Associates -- an investment banker and financial advisor, said, "The investor confidence is linked with market index. The market turbulences keep them averse from entering into fresh buying.
This limits prospects of fund raising through IPOs, while there is huge amount of funds available with private equity players. This seems attractive for companies to choose private financing mode over IPO."
"Recently, a large corporate from Gujarat avoided fund raising via IPO and opted for private equity. The company was to raise around Rs 750 crore (Rs 7.5 billion) from primary markets," said Shah without revealing the name of the company due to confidentiality contract with it.
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