LONDON, July 9: Global credit rating service Moody’s on Monday said the performance of the debt-laden private equity sector would depend on stable global economic growth and low interest rates.

Private equity groups specialise in raising cash from private investors and banks, which they use to buy underperforming publicly listed companies, which are then taken private, restructured and re-sold.

Such takeovers typically involve a large amount of debt.

“Future performance of current transactions will likely hinge on the economy remaining relatively stable and the credit markets remaining forgiving as many of these transactions will need to be re-financed over the coming years,” Moody's said in the report.

The industry, which includes US investment fund giants Blackstone and Kohlberg Kravis Roberts (KKR), has seen an increased number of takeovers which are financed purely by bank debt, according to the report.

“In our view, this could lead to increased vulnerability to expanding interest costs ... as interest rates inevitably rise,” the report warned.

The rapidly-growing private equity sector is now a major force in the world’s financial markets.

Last week, US group Hilton Hotels Corporation was bought by Blackstone for $26 billion.

British-based CVC Capital Partners also snapped up prominent US luggage maker Samsonite Corporation for $1.7 billion.

In recent months, the sector has faced fierce criticism from some experts who argue that private equity companies are geared towards generating short term profits with debt-driven deals.

Trade unions, meanwhile, have claimed that such takeovers also put jobs in jeopardy.

Moody’s said that private equity groups did not appear to be investing for the long-term any more than publicly listed companies.

“The current environment does not suggest that private equity firms are investing over a longer term horizon than do public companies, despite not being driven by the pressure to publicly report quarterly earnings,” Moody’s added.—AFP