Gulf-based PE firms, wealth funds likely to revisit India strategies

Private equity firms, including sovereign wealth funds from the Gulf Cooperation Council (GCC) with an exposure in listed and unlisted companies in India, are likely to revisit their investment strategy in India in the aftermath of the Dubai financial crisis. These funds together have a total investment of $2.77 billion in listed and unlisted firms in India. Of this, a major portion, amounting to $2.45 billion or 88.44% has come from UAE.

If the crisis worsens, experts feel that the incremental investment flow from these regions will definitely get impacted as funds would find it difficult to raise money from investors because of risk aversion. However, listed companies that have received investment from sovereign funds or private equity firms might come under pressure in the coming days if there is a sovereign downgrade and liquidity becomes tighter.

"These people are in a tight liquidity condition and the Indian market is the one that has really performed in the recent months. So, there are strong possibilities of funds getting withdrawn by these firms to meet their liquidity requirement back home," commented a senior executive an overseas bank, on the condition of anonymity.

Isthithmar, a Dubai government -run investment firm, has a 13.40% stake in Spicejet, whose stock got battered on Friday by nervous investors. The stock fell 4.44% on the BSE (^BSESN : 16026.47 -15.71) to close the day at Rs 45.15.

Similarly, the stock of Federal Bank, having a 4.74% stake by Emirates Financial Services, fell 2.34% to end the day at Rs 231.15. The stock of others such as Tanla Solutions, Orbit Corporation and Elder Pharma, in which GCC-based sovereign wealth funds hold significant stake, fell 4.84%, 7.09% and 1.37% respectively on the BSE on Friday.

Apart from these listed companies, funds based out of the UAE also have significant exposure in many prominent unlisted firms in India. Major among them include Dubai Financials' investment in Thomas Cook, and Dubai Investment Group's investment in Time Broadband, Bharat Hotels, Chiranjeevi Wind Energy and East Gate Capital Group's investment in Avendus Capital, among others. Since private equity firms traditionally invest with a five to seven year time horizon, there will not be any kind of panic selling, according to experts. "The events in Dubai are definitely a setback as far as liquidity and confidence is concerned. There will not be any panic selling because of this, but private equity funds might consider exiting if they are getting good valuations," said Jagannadham Thunuguntla, head of equity, SMC Capital.