Structured PE deals on rise on economic uncertainty
At a time when deal flows in private equity sector remained subdued, structured deals are on the rise as PE investors seek assured returns in the backdrop of lingering economic uncertainty.
Typically, a specific rate of interest is paid to a PE player by the invested company in a structured deal. It is different from an entity-level exposure in which a PE fund acquires stake in the company and its returns depend upon the success of the business model.
Already, developers like Ansal Properties and Infrastructure, Century Real Estate and Puravankara Projects among others have raised around Rs 1,050 crore in the current calendar year through structured deals.
In 2010, over 20 realtors had raised around Rs 3,000 crore through structured deals, constituting almost 70 percent of the entire quantum of such deals during the year.
However, when contacted none of the players agreed to quantify the percentage rise or the total amount of money that has flown into the market through structured instruments so far this year.
"Structured deals became popular during the 2008-09 period following the global economic downturn. As many PEs had lost money due to dip in the general demand during that time, instruments that provide guaranteed returns are preferred over entity-level exposures," New Delhi-based Fire Capital Chief Executive Om Chaudhry told reporters Monday.
Chaudhry further explained that promoters also prefer this kind of funding as there are no restrictions on end-use of the money.
Though structured deals have gained popularity across sectors, real estate industry has seen the maximum number of such deals, particularly those concerning the issuance of non-convertible debentures was seen in the last two years.
In 2010, over 20 realtors had raised around Rs 3,000 crore through such instruments. Generally, 70 percent of the structured deals took place in the realty space.
As per Venture Intelligence, a PE-focused research firm, while domestic fund houses like ICICI, IL&FS Investment Managers and IDFC are active in such debt instruments, global PEs like KKR and Apollo have extended funds through such deals in the recent past.
Referring to this trend, a top official of Il&FS Milestone Fund said structured deals would see a rise due to volatility in the market space.
"Going ahead, these instruments will only see a jump as the market is expected to remain volatile in the future," IL&FS Milestone Fund Managing Partner Rajesh Birla said, adding the usual rate of interest on such instruments varies from 18 to 24 percent or even more in some cases.
Birla further said his fund prefers this kind of funding as "they are able to provide sound return to investors".