It’s a bird it’s a plane it’s private equity

It’s a bird it’s a plane it’s private equity

Private equity has huge scope in India right now.

Where is private equity (PE) when India desperately needs it? The process of bankruptcy resolution underway in the country cries out for large dollops of patient capital. Assets are being sold at a steep discount to their replacement cost, forcing large haircuts on banks. Asset prices would improve, banks would take lower losses and patient investors would make serious profits, if PE were to play a significantly higher role in the resolution process. Not only that, serious distress can be avoided and the Indian economy salvaged from a paucity of competition in certain critical sectors, with timely injection of PE.

Take telecom, for example. Jio’s entry has disrupted the sector, made India the number one country in mobile data consumption and also pushed other players deep into debt. The government’s new telecom policy makes sensible suggestions to sharply lower the levy the government collects from telcos by way of spectrum usage charges. Fast spread of smartphones and power in rural areas combine to produce an ecosystem in which all kinds of new digital businesses can thrive. However, neither the Internet of Things nor the businesses it would make possible would materialise, if telcos fight shy of investing to upgrade data networks, say, to 5G. The solution is large dollops of capital that PE can give telcos on mutually beneficial terms. PE can avert large-scale distress to homebuyers. The Insolvency and Bankruptcy Code is ill-suited for resolving real estate companies — it lists homebuyers as unsecured creditors. Jaypee Infratech’s homebuyers’ fate could well depend on its promoter Jaypee Associates being able to pony up the deposits demanded by the Supreme Court to prevent the company’s liquidation. Many more real estate developers are likely to come up for resolution and possible liquidation. Infusion of PE funds could avoid much distress, including to the banks that have lent to homebuyers.

Globally, PE reportedly sits on $970 billion of dry powder, ready to be invested. In India, too, savings pools are diversifying into PE. It is time PE realised its potential.