Crisis-hit NBFC sector sees private equity investments growing 88% in 2018

Chennai, Nov 8: Private Equity (PE) investments in India’s non-banking financial companies (NBFCs) in the January-November period of this year has reached $2.041 billion — 88 per cent more than full 12 months of 2017 and the highest in four years. The increase in overall PE investment value has been despite the number of deals this year being lower than last year, and the sector facing a liquidity crisis.
According to data from Venture Intelligence, the NBFC sector has received a total of $2.04 billion in 25 PE investment deals so far this calendar year, compared with $1.09 billion in 32 deals during full 2017.
Among the biggest such deals was the $1,06-million KKR-GIC investment in HDFC Ltd in January 2018. Besides, two major PE deals were announced last week — TPG Growth-led $42-million equity investment in Ess Kay Fincorp, and the Rs 2-billion investment by Norwest Venture Partners X, CDC Group Plc, UK’s Development Finance Institution and P Surendra Pai in Chennai-based Veritas Finance Pvt Ltd.
According to experts, you could see more deals in the pipeline being announced in the coming months, as many funds believe the present time is an opportunity to acquire portfolios and assets at reasonable valuations. And, these funds are also bullish on the long-term scope and prospects of the NBFC sector.
The recent PE investment surge in the NBFC sector is noteworthy, coming as it is at a time when many listed non-banking financial companies have seen significant erosion in their market value due to asset-liability mismatches, tightening of liquidity in the short-term money market, and a reduced ability to seek higher short-term borrowings to fully meet their repayment obligations.
On the crisis facing the country’s NBFCs, Sumer Juneja, director at Norwest Venture Partners, which has invested in various NBFCs like Shriram City Union and Chola Finance, says the valuations of these companies were too high and were due for a correction.