Global investors, PEs cash in on rally with block deals

Mumbai: With the Indian stock market bouncing back sharply and the primary market continuing to remain sluggish, private equity funds and other large foreign investors are rushing to the secondary market to encash their investments.

There were nearly half a dozen large block deals so far in August in which foreign funds sold shares worth ₹20,400 crore. A few more large deals are slated for this month, bankers said.

Stake sales through block deals or public offers are a reflection of buoyant market conditions and robust investor demand for quality companies, deal makers said.

"Block deals are an opportunistic product, usually a precursor to increased primary market activity," said Utpal Oza, head of investment banking at Nomura India. Some of the recent block deals are significantly larger than usual - "as big as M&A transactions" he said.

"Larger block deals done in quick time are promising signs of maturing markets and strong investor appetite for the Indian growth story," Oza said.

Secondary market activity has revived from renewed foreign institutional inflows, sustained and continued domestic flows, and abated volatility in equity markets.

The Nifty benchmark index has bounced back over 18% from its June 17 low and is just 3.6% away from all-time high. Foreign portfolio investors, who have been consistent sellers between October 2021 and June 2022, bought shares worth ₹39,555 crore so far in August.

In the latest block deal, global investment firm Blackstone on Thursday sold 79.4 million shares, or a 13.59% stake, in auto component maker Sona BLW Precision Forgings to raise ₹4,040 crore, or $509 million. The buyers included Singapore's sovereign wealth fund GIC and domestic mutual funds such as SBI, Nippon, Kotak, HDFC, Nomura, and Eastspring Investments.

In another block deal, US-based Capital Group sold a 3.8% stake of Embassy Office Park REITs for about ₹1,046 crore.

On Tuesday, global private equity major Kohlberg Kravis Roberts & Co LP (KKR) sold its entire investments in hospital chain Max Healthcare for a near five-fold payback in two-and-a-half years.

KKR's affiliate Kayak Investments sold a 27.5% stake, or 260 million shares, in Max Healthcare to raise about ₹9,186 crore. KKR, which had bought shares in December 2018 at ₹80 apiece, sold the stock at an average price of ₹353 a share.

The ability of large investors such as private equity funds to take large exits should be seen positively and reinforces the message on the attractiveness of the Indian capital markets, deal makers said.

"Such exits show that not only are investors able to make mark-to-market gains as stocks rally and outperform other major markets, but they are also able to translate this into realised gains," said Raj Balakrishnan, co-head, investment banking India, at Bank of America. "For financial sponsors, successful exits from a given fund facilitate larger investments in India from the subsequent funds they launch - both in the listed and unlisted space," he added.

Early this week, global investment firm Abrdn Investment, one of HDFC AMC's promoters, sold nearly 12 million shares, representing 5.6% of the company, for about ₹2,300 crore. Abrdn held 16.2% in HDFC AMC as of June 30, 2022.

Earlier this month, Uber Technologies exited its entire 7.8% stake in food delivery platform Zomato by selling 612 million shares to raise around ₹3,088 crore, or $390 million, at nearly 100% profit.

Similarly, on August 4, Ivanhoe, the real estate arm of the Canadian pension fund CDPQ, sold a 1.5% stake in Macrotech Developers for ₹736 crore through a block deal.