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PE firms swoop on distressed power, textiles units

business Updated: Apr 09, 2007 01:40 IST
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Global distress asset management companies are striking equity deals in power, textiles, paper and sugar sectors in an attempt to diversify their portfolios.

The latest deal doing the rounds is in the power sector. The US-based fund Clearwater Capital Partners is talking to Mumbai-based power distribution equipment company IMP Power for an equity investment. “Power distribution is the next growth story. That is why companies like IMP Power are being chased by private equity (PE) firms,” said a Mumbai-based investment-banking source. “PE firms are interested in assets not only in the generation, but also in the transmission and distribution businesses,” said an Edelweiss analyst.

Hong Kong-based ADM Capital’s, which made major investments in the cement sector, is now targeting paper and textile sectors. ADM has recently struck a deal to invest $107 million in Mumbai-based textile major S Kumars Nationwide Ltd.

Recently, Blue River Capital, Brandot Investments and Argonaut Private Equity collectively invested close to Rs 105 crore in Coimbatore-based KPR Mills, which was mired in financial problems. Though the retail boom has been giving an impetus to the decentralised Indian textile industry, the market has not reacted positively towards the potential growth opportunities of the sector. “The sector is good, but market has not yet reacted towards the positive growth,” said Kamlesh Gandhi, country head, investment banking, Religare Securities.

Distress management firms are also looking at investments in sugar and paper stocks. There is a talk that ADM is set to make a substantial investment in a paper company. “Sugar must be one of the potential sectors for the PE firms where companies are failing to perform in a regulated market environment,” said an analyst with Motilal Oswal.

“But sugar industry has been in the red for the last several months, which was reflected in the performance of sugar scrip. But the recent government decision to ease sugar exports is a good news though returns may be high only for long-term investments,” he said, adding, PE firms have paid a special attention towards sugar sector. However, due to the very disoriented nature of the industry, enterprises are facing difficulties in getting necessary funds, which will pave the way for larger PE investments, analysts feel.

India has emerged as the most- favoured private equity (PE) destination attracting $1.24 billion investments in January and February.