where is that adam smith's "invisible hand"?
TRANSCRIPT
Where is that Adam Smith’s ‘invisible hand’?
Update: October, 2008
5.29
3.06
0.00
1.00
2.00
3.00
4.00
5.00
6.00
Total Investments in PIPEs* Current Mark-to-Market Values**
Am
ou
nt
(US
$ B
n)
Notes:* Average RBI reference rate for CY 2007 = US$ / Rs. 41.29** RBI reference rate as per closing price as on 10 October, 2008 = US $/Rs. 48.72*** Covered PIPE (Private Investment in Public Enterprise) transactions of CY2007****In this presentation the closing equity prices of 10 October, 2008 are taken as basis for calculating the current MTM value
PIPE Investments of 2007 and Current Mark-to-Market Values
Due to continuous downfall and rough market conditions of 2008, the overall till-
date-return on PIPE deals of 2007 (on volume basis) is at -42.19% aggregating to a loss of
US$ 2.23 Billion on absolute basis
IT & ITeS
BFSIInfrastructure
Healthcare & Lifesciences
Media
Telecom
Manufacturing
Real Estate
-69.39%
-27.06%
-72.24%
-52.40%
3.72%
-80.65%-76.60%
-70.75%-73.62%
-90%
-60%
-30%
0%
30%
Retail
PIPEs of 2007: Industry-wise Return till date (%)
The wealth destruction is all pervasive across the sectors. Only Telecom with Bharti is just above the water level, due to volatile capital market conditions. The investments made in Retail, Media, Real Estate, Infrastructure and
IT & ITeS sectors have lost more than seven-tenth of their value.
Re
turn
til
l d
ate
(%)
58
937
397
58
1344
10
14
161
81
191
1284
1432
121
1296
52
59
550
308
0 200 400 600 800 1000 1200 1400 1600
IT/ITeS
BFSI
Infrastructure
Health Care
Telecom
Retail
Media
Manufacturing
Real Estate
PIPEs of 2007 : Industry-wise Return till date (%) Cont’d…
Amount (US$ Mn)
Amount Invested Mark-To-Market
3
1
1
8
12
7
2
4
2
16
7
0 2 4 6 8 10 12 14 16 18
IT/ITeS
BFSI
Infrastructure
Healthcare
Telecom
Retail
Media
Manufacturing
Real Estate
Number of PIPEs of 2007 – Current MTM Gain & Loss
Total Deals 7
Total Deals 17
Total Deals 2
Total Deals 4
Total Deals 1
Total Deals 2
Total Deals 7
Total Deals 15
Total Deals 8
About 92% of the PIPE deals of 2007 are in negative territory,
owing to high entry valuations and volatile capital market conditions.
8%
92%No. of PIPEs in Loss - 58
No. of PIPEs in Profit - 5
Total Deals 63
Loss Profit
Profit Loss
8.18
4.75
0
2
4
6
8
10
Total Investment in IPOs* Current Mark-to-Market**
Am
ou
nt
Inve
ste
d (
US
$ B
n)
IPOs of 2007 and Current Mark-to-Market Values
The IPO volumes raised during 2007 were at record high of US$ 8.18 Bn reflecting the feel-good factor of bull market. However, the rough market conditions of 2008 have seen their value eroding by about US$ 3.43 Bn in absolute terms,
indicating a negative return of about -42%
*. Average RBI reference rate for CY 2007 = 1 US$/ Rs. 41.29** The RBI reference rate as of 10 October, 2008 = US $/Rs. 48.72/- is taken as the basis for conversion of Current MTM values.*** Covered all the IPOs of 2007**** In this presentation the closing equity prices of 10 October, 2008 are taken as basis for calculating the current MTM value
IPOs of 2007 : Industry-wise Return till date (%)
Manufacturing
IT & ITES
Others
Media Telecom
Auto
Healthcare
Real Estate
BFSI Retail
Infrastructure
Re
turn
til
l d
ate
(%)
Of the IPOs of 2007, the wealth got eroded across the industry segments in the backdrop of capital market conditions of 2008. Of these, more than 60% of the value is eroded in the industry segments of Auto,
Healthcare, Manufacturing, Media and Real Estate.
-73.70%
-24.05%
-64.71%
-15.56%
-48.06%
-60.70%
-75.05%
-48.81%
-59.98%
-44.41%
-29.54%
-80%
-60%
-40%
-20%
0%
20%
48
918
207
1,918
300
309
81
312
3,085
365
641
13
697
73
1,619
156
121
20
160
1,235
203
451
0 500 1000 1500 2000 2500 3000 3500
Auto
BFSI
Healthcare
Infrastructure
IT & ITES
Manufacturing
Media
Others
Real estate
Retail
Telecom
IPO Size Current MTM
IPOs of 2007 : Industry-wise Return till date (%) Cont’d…
Amount (US$ Mn)
4
2
2
2
1
2
2
3
4
6
15
9
18
3
6
9
2
13
0 5 10 15 20 25
Auto
BFSI
Healthcare
Infrastructure
IT & ITES
Manufacturing
Media
Real estate
Retail
Telecom
Others
15%
85%
Number of IPOs – Gain & Loss: 2007
Total Deals 15
Total Deals 2
Total Deals 11
Total Deals 7
Total Deals 3
Total Deals 20
Total Deals 11
Total Deals 17
Total Deals 6
Total Deals 8
Total Deals 3
Loss
Total IPOs - 103
Profit Loss
No. of IPOs in loss: 88
No. of IPOs in profit: 15
Profit
4.23
1.75
0
1
2
3
4
5
Total Investment in IPOs* Current Mark-to-Market**
Am
ou
nt
Inve
ste
d (
US
$ B
n)
IPOs of 2008 YTD and Current Mark-to-Market Values
During 2008 YTD, IPO volumes have seen substantial drop to US$ 4.23 Bn in comparison
to the IPO volumes of 2007 of US$ 8.31 Bn, indicating a YoY drop of -47% on annualized basis. And also, the MTM losses of IPOs of 2008 is as high as -59% with a loss of about
US$ 2.5 Bn on absolute basis, causing a virtual drying up of Indian primary markets.
*. The RBI reference rate as of the date of investment is taken as the basis for conversion of investment values. ** The RBI reference rate as of 10 October, 2008 i.e. 1 US$ = Rs. 48.72/- is taken as the basis for conversion of Current MTM values.*** Covered all the Jan-September (till date) IPOs of 2008**** In this presentation the closing equity prices of 10 October 2008 are taken as basis for calculating the current MTM value
IPOs of 2008 YTD : Industry-wise Return till date (%)
Energy
BFSI
HealthcareInfrastructure
PharmaIT&ITeS
Others
Textile
Manufacturing
Retail
Telecom
Re
turn
til
l d
ate
(%)
The current MTM losses have been experienced across the industry segments in the IPOs of 2008 also. Some of the IPOs which have seen heavy over subscription
such as Future Capital, Reliance Power have seen serious value erosion.
-45%
-80%
-45%
-33%
-79%
-60%-57%
-48%
-75%
-16%
-52%
-90%
-60%
-30%
0%
30%
45
123
3,182
10
426
58
144
26
8
145
62
25
26
1,268
5
182
12
80
22
2
97
32
0 500 1000 1500 2000 2500 3000 3500
IT & ITES
BFSI
Energy
Healthcare
Infrastructure
Manufacturing
Others
Pharma
Retail
Telecom
Textile
IPO Size Current MTM
IPOs of 2008 YTD : Industry-wise Return till date (%) Cont’d…
Amount (US$ Mn)
1
1
1
1
1
1
1
3
1
5
4
7
1
1
3
2
0 2 4 6 8 10
IT & ITES
BFSI
Energy
Healthcare
Infrastructure
Manufacturing
Others
Pharma
Retail
Telecom
Textile
Number of IPOs – Gain & Loss: 2008
Total Deals 3
Total Deals 3
Total Deals 1
Total Deals 2
Total Deals 8
Total Deals 4
Total Deals 6
Total Deals 1
Total Deals 3
Total Deals 1
Total Deals 2
Profit Loss
15%
85% No. of IPO's in Loss- 29
No. of IPO's in Profit- 5
Total IPOs - 34
Profit Loss
1,051
5,005
529471
1,836
268
0
1,000
2,000
3,000
4,000
5,000
6,000
2006* 2007 2008 (Jan to YTD)
QIP
Am
ou
nt
/ C
urr
en
t M
TM
Va
lue
(U
S$
Mil
lio
n)
QIP Volumes and Current Mark-To-Market Values
QIP guidelines came in May 2006 and the first QIP placement happened in Sept 2006.During Sept to Dec 2006, QIP volume was US$ 1.05 Bn.
However, the fund raising activity through QIP route has substantially reduced to US$ 0.53 Bn in 2008 Year-to-date in comparison to US$ 5.00 Bn in 2007, representing an YoY drop of -86% on annualized basis. Similarly, even the number of QIPs have fallen to 4 in 2008 YTD from 29 in 2007.
The total volume raised through QIPs from 2006 till date aggregated to US$ 6.59 Bn. The Current MTM value of the same has fallen to US$ 2.58 Bn representing current MTM return of -61%.
No. of QIPs - 16
Notes: 1. *Qualified Institutional Placement (QIP) Guidelines came in May 2006. The first QIP happened in Sept 2006. 2. Current MTM values are based on the closing prices as of 10 October 2008. 3. The RBI reference rate as of the date of investment is taken as the basis for conversion of investment values. 4. The RBI reference rate as of 10 October 2008, i.e. 1 US$ = Rs. 48.72/- is taken as the basis for conversion of Current
MTM values.
Fund raised through QIPs Current Mark-To-Market Value
No. of QIPs - 29 No. of QIPs - 4
Current MTM : -55%
Current MTM : -63%
Current MTM : -49%
-55.88%-51.57%
-67.71%-62.16%
-41.27%
-79.37%
-50.22%
-60.65%
-72.12%
-50.21%
-100%
-80%
-60%
-40%
-20%
0%
20%
40%
IT & ITeS
BFSI
Energy Retail
Media
Engineering & Construction
Manufacturing
Real Estate
Infrastructure
Others
Total QIP Volumes : Industry-wise Return Till Date (%)C
urr
en
t M
TM
Re
turn
(%
)
The Current MTM losses are seen across the industries. Real Estate being the biggest loser with -79% and Infrastructure being the second worst performer with -72%. The companies such as Ansal, GMR, Phoenix Mills, Peninsula Land, Mahindra Lifespaces, Suzlon Energy are amongst the biggest losers in terms of Current MTM Values.
207
50
697
951
102
87
633
2,218
211
1,428
103
22
338
307
39
51
131
1,104
83
398
0 400 800 1200 1600 2000 2400
Others
IT & ITeS
Manufacturing
Energy
Media
Engg & Contruction
Real Estate
BFSI
Retail
Infrastructure
Total QIP Volumes : Industry-wise Return Till Date (%)
Total QIP Value Current Mark–to–Market Value
Amount (US$ Million)
Loss Profit
2%
98%
Total QIPs-49
No. of QIPs in Loss - 48
No. of QIPs in Profit - 1
1
2
3
14
4
3
4
4
8
2
4
0 2 4 6 8 10
Others
IT & ITES
Manufacturing
Energy
Media
Engg & Contruction
Real Estate
BFSI
Retail
Infrastructure
Total 4
Total 2
Total 8
Total 4
Total 4
Total 3
Total 4
Total 15
Total 3
Total 2
No. of QIPs : Current MTM Gains and Losses
Profit Loss
Of 49 QIPs happened in India till date, only 1 QIP is above the issue price. Even high profile QIPs which attracted very high profile institutions, FIIs, banks, insurance companies and Hedge Funds as subscribers from across the globe are crushed under the unprecedented market sell-off.
Investment Current Mark-To-Market
3.06
2.58
4.75
1.75
5.29
6.59
8.18
4.23
0 2 4 6 8 10
PIPEs
QIP
IPO - 2007
IPO - 2008 (Jan - YTD)
Amount (US$ Bn)
Deal Summary – PIPEs / IPOs / QIPs
– Amount invested and Current MTM
The investments made into PIPEs, QIPs, IPOs have lost on current MTM basis an aggregate amount of about US$ 12.16 Bn, as against total investment amount of US$ 24.29 Bn representing a loss of -50.04%.
The wealth erosion of this magnitude may be attributable to entry at high valuations and underperformance of capital markets on the backdrop of completely changed Global / Indian macro factors.
Considering the latest turmoil in US economy, the Indian financial markets may need to weather through more challenging times ahead.
5
15
1
5
29
88
48
58
0 20 40 60 80 100 120
IPOs-2008 (Jan-till Date)
IPOs-2007
QIPs
PIPEs
10%
90%No. of QIP's/IPO's/PIPE'sin loss: 223
No. of QIP's/IPO's/PIPE'sin profit: 26
Total Deals 49
* ”Total Deals “includes aggregate number of PIPEs of 2007, IPOs of 2007, IPOs of 2008 and QIPs till date
Total Deals 249
Deal Summary – PIPEs / IPOs / QIPs
– Number of Deals : Gain / (Loss)
Profit Loss
Total Deals 63
Total Deals 103
Total Deals 34Profit Loss
Re
turn
til
l d
ate
(%)
Deal Summary – PIPEs / IPOs / QIPs
– Return till date (on volume based) (%)
Notes:
1.This presentation includes PIPEs , IPOs and QIPs.2. Current Mark-To-Market values are calculated based on the closing prices of 10 October, 2008.
PIPEs QIPs IPOs - 2007 IPOs – 2008(Jan – YTD)
-42.19%
-60.89%
-41.97%
-58.61%
-80%
-60%
-40%
-20%
0%
20%
Investors in all forms of fund raising such as PIPEs, QIPs, IPOs of 2007 and IPOs of 2008 have lost money. As such there is no place to hide in the current day capital market turmoil. Investors must be wondering: “Where is that Adam Smith’s ‘invisible hand’ which runs the capitalism?”
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