VCCircle

The number of suitors for the Hutch stake in India is growing. The latest to enter the fray is the Indian partner itself - the Ruias of Essar. The Ruias hold about 33 per cent stake in Hutchison Essar, and acording to Business Standard, the Mumbai-based diversified business group is toying with the idea of picking up its majority partner's stake.

Hutchison holds a 52 per cent stake directly, while another 15 per cent is held by Analjit Singh of Max India and Hutch CEO Asim Ghosh together. The stake held by Hutch alone could be valued at around $7-8 billion, which means Essar will have to raise funds or strike partneships to pick up the stake.

There has been interest from global buyout funds like KKR, Texas Pacific Group, Blackstone and even Reliance Communications.

What is interesting is even Bharti Tele-Ventures may look at buying the Hutch stake. "If the Ruias aproach us, then we would think about it," Bharti Chairman Sunil Mittal told CNBC TV18. Which means Bharti can consider buying the Hutch stake only with the concurrence of the Ruias.

The Hutch asset sale is getting interesting with a variety of players entering the fray.

Related:

Now KKR In Talks With Reliance Com To Buy Hutch Assets In India

Blackstone, Texas Pacific, Reliance Com May Consider Acquiring Hutch Assets In India: WSJ

Hutch To Exit India? Will Essar-PE Firm Combine Buy Them Out?

Indian School of Business in Hyderabad is running a Venture Capitalist Development Programme. It's an intense six day program which intends to develop future venture capitalists.

Participants: Professionals seeking to make a career shift to VC; Analyst and Associates at VC/PE firms; CPAs and Lawyers servicing VC/PE firms and their clients; Professionals in commercial banks, insurance companies and other similar fund-of-fund organizations, who manage or advise investment into VC/PE funds.m

Faculty: John Mullins, Gerry George (Both professors at London Business School)

Dates: March 23-28, 2007, ISB

Fee: Rs 50,000 (after partial scholarship to all. The actual course fee is Rs 150,000 and and Rs 100,000 is subsidised by Wadhwani Foundation). It's a residential programe and the cost of boarding and lodging for six days are covered in the fee. There are a few need-based full scholarships too.

The programme is organised by the Wadhwani Centre for Entrepreneurship Developent and the Center for Executive Education at the ISB, in cooperation with the Wadhwani Foundation and the National Entrepreneurship Network.

domain-B has a nice analysis here. Check it out. It suggests Tata Steel can gain more by way of break-up fee of $92 million from Corus if it gives way to Brazil's CSN rather than upping its bid to a high 550 pence or so.

After Brazil's CSN upped their bid to 515 pence (against Tata's revised bid of 500 pence offer) for acquiring Corus, the Tatas are contemplating a counter offer. The Mumbai business house has appointed UK investment bank NM Rothschild & Sons to advise them on the deal, reports The Economic Times. This shows that the Tatas are not backing out yet.

The 515 pence offer values Corus at $9.6 billion. Tata's original offer was 455 pence, while CSN bid at 475 pence. On Monday, Tatas made a counter offer at 500 pence.

Rothschild will be the third advisor to Tatas. It is already been advised by ABN Amro and Deutsche Bank. Rothschild aill apparently advise them on the strategy as for going forward as well as on the fund raising.

CSN is being advised by Lazard and Goldman Sachs, while JP Morgan Cazenove and HSBC are acting for Corus. Tata Steel is being advised by ABN AMRO, Deutsche Bank and Rothschild.

There is a new twist to the Hutch tale. The Economic Times reports that buyout fund KKR is in talks with Anil Ambani's Reliance Communications (RELCOM) to buy out Hutch's wireless assets in India. The Wall Street Journal had earlier reported that buyout funds like Blackstone, Texas Pacific Group, and also Indian telco RELCOM were in talks to buy the Hutch stake in Indian telco Hutchison Essar, India's third-largest GSM operator with a subscriber base of 16 million.

“It is very preliminary as of now. There are a number of unknowns in a transaction of this type,” ET quotes an investment banking source. Hutchison seems to be planning to exit Indian market since it's not sharing a great relationship with its Indian partner Essar. Also, Hutch can cash out at a price of $8 billion for its two-third stake in Hutchison Essar. The Indian partner Essar owns 33 per cent stake.

The report also says that Texas Pacific Group and Malaysia's Maxis had made a bid last week for 100 per cent of Hutchison-Essar at an enterprise value of $13.5 billion. The bidders approached Canning Fok, chairman of Hutchison Telecom International, the parent of Hutchison Essar, who was in India on a brief visit, says ET. The bid was believed to be turned down.

There is definitely something cooking up.

Related:

Blackstone, Texas Pacific, Reliance Com May Consider Acquiring Hutch Assets In India: WSJ

Hutch To Exit India? Will Essar-PE Firm Combine Buy Them Out?

Idea Cellular Ltd plans to raise upto Rs 2875 crore ($641.7 million) through the IPO. Of which, a 15 per cent will be raised through a pre-IPO placement, reports Reuters. That's about Rs 431 crore ($95 million) that will be raised from investors pre-IPO. The IPO is managed by JM Morgan Stanley and DSP Merrill Lynch, with Citigroup and UBS as co-managers.

So far a few private equity investors have invested in Idea Cellular.

The latest was Sequoia Capital India's investment of $42 million for a 1.5 per cent stake in the Pune-based telecom company. Providence Equity Partners picked up close to 15 per cent for $400 million, while Chrys Capital invested about $100 million for a little less than 4 per cent stake. The other investors in Idea include TI TA Associates of UK, Citigroup Venture Capital International and Maquarie Bank of Australia. All this placement has happened at a valuation of $2.8 billion.

The proposed pre-IPO placement (15% of the issue) will be done at the IPO price. This is expected to be at 20 per cent premium to the private equity placement.

Clarification: Citing an Economic Times report, I had mentioned that Sequoia Capital India has paid more than what other private equity players have paid for their stake in Idea. It turns out that it is wrong. Sequoia has indeed picked up the stake in Idea at the same valuation ($2.8 billion) as Providence and ChrysCap.

Related:

Sequoia Capital Picks Up 1.5% Stake In Idea Cellular

ChrysCapital Invests $122 Million In Idea Cellular; Providence Puts In $400 Million

GLG Partners Pick Up 8% In Idea Cellular For $213 Million: Report

Four Funds Pick Up 25% In Idea Cellular

Idea Cellular Files Draft IPO Prospectus; The Issue To Raise Rs 2,500 Crore

Indian travel portal Cleartrip.com has got second round funding of $8 million, according to a report in VentureWire. DAG Ventures has led the round and is joined by the return backer Sherpalo Ventures. It's not clear if Kleiner Perkins, which alongwith Sherpalo had invested $5 million in the first round early this year, has participated in the current round. [Via ContentSutra.com]

Travelguru recently announced $15 million in series B VC funding from Battery Ventures and the existing backer Sequoia Capital India. MakeMyTrip has also tied up more than $10 million in funding from Helion Venture Partners, Sierra Ventures and SIAF Partners.

Who said the aviation business is not promising? Not in India at least, even though most of the market players are losing money. Investors are queueing up to invest in budget airline SpiceJet Ltd. The company's board has decided to issue shares on a preferential basis to investors to the tune of $80 million. Apparently the airline has got investment proposals worth $118.5 million from the investors. The potential investors include the Tata Group, private equity funds Texas Pacific Group Ventures, Istithmar PJSC and Goldman Sachs.

According to a report, Tata group firm Ewart Investments has offered to invest $16 million and Tata Investment Corp. Ltd $1.2 million (about 7.5 per cent . Texas Pacific has offered $30 million, Istithmar $25 million and Goldman Sachs $5 million. The shares have been placed at Rs 51.40 a share.

Dubai-based Istithmar currently holds 10 percent of SpiceJet.

This is interesting. Earlier, SpiceJet was planning to raise only $60 million through a plain vanilla equity sale. With the current interest, the airline upped its fund raising to $80 million. Spicejet has already raised money twice -- through a $80 million overseas convertible bond issue and a $12.5 million stake sale to Istithmar - since it began operations in May 2005, says Reuters.

SpiceJet had revenues of Rs 453 crore ($100 million) in the business year ending May 2006.

There is some development on the MTR Foods sell-off front again. The company has been on the auction block for a while. Now the latest suitor being reported by The Economic Times is the US-based McCormick & Company, a leader in the manufacture, marketing and distribution of spices, seasonings and flavours. The deal may sealed in the next two weeks, and the Bangalore-based company's asking price is said to be in the range of Rs 350-400 crore. MTR makes ready-to-eat and ready-to-cook food ingredients and spices.

MTR was believed to have got interest from other buyers too, which included names like Tata Coffee (can't figure the synergy), Godrej, ITC, and even Wipro. Besides the private equity firms like Blackstone, Indivision and Actis were also believed to have been in some kind of talks with MTR Foods.

The Economic Times reports that the Maiya family, the owners of MTR Foods, decided to hang on as the valuations kept creeping up from Rs 250 crore to Rs 350 crore.

It apparently made sense to McCormick, even if it pays a slightly higher premium, because the company does not have Indian foods in its portfolio. Moreover it can also use MTR Foods facility to outsource some of its products manufacturing. McCormick was founded in 1889.

MTR Foods's investment banker N M Rothschild had put a price tag of Rs 300 crore on the company when it called for bids earlier this year. The Maiya family controls 59 per cent stake in the company, JP Morgan holds 26 per cent and Aquarius Capital holding 14-15 per cent.

Related:

JP Morgan Chase May Sell Its 26% Stake In MTR Foods

MTR Stake Sale To Take Time; PE Funds Interested Still

MTR Foods Sell-off Auction Hotting Up; Sept 25 Last Date For Bids

(Editor's note: This guest column is written by Shantanu Surpure, partner at Economic Laws Practice, a Mumbai-based law firm specialised in venture capital, private equity and cross border transactions. Yashojit Mitra and Devyani Singh, associates at ELP, assisted in writing this article.)

As we continue our discussion of some comparative legal issues between the US and India, I thought it would be helpful to further analyse some of the minimum shareholding threshold amounts under Indian Law.

Foreign investment in India occurs through either the automatic route or approval route. The automatic route does not require further government approval. Investments in the approval route require further government approval such as from the Reserve Bank of India or the Foreign Investment Promotion Board.

Regardless of whether investment occurs through the automatic route or requires governmental approval, certain “sectoral caps” exist which serve to limit the amount of foreign investment in a company engaged in a particular section of the economy. Examples include: banking 10%, insurance 26%, telecommunications 49%, trading 51%, single brand retailing 51%. Why are these particular numbers important in Indian law? Is there a particular rationale?

The importance of shareholder thresholds

One of the key differences between Indian law and US law (i.e. Delaware) is that whereas pursuant to Delaware General Corporation Section 216, the Certificate of Incorporation or Bylaws of the company may specify the number of shareholder votes that may be necessary for the transaction of any particular item of business - under Article 189 of the Indian Companies Act, 1956 (the “Act”), certain actions require ordinary or special resolutions.

Therefore, there are certain shareholder percentage thresholds that one needs to consider in making investments in India because they result in certain rights or the ability to block certain actions. It is these specific shareholder thresholds that are critical in analyzing the sectoral caps.

The following are generally applicable to both public and private companies.

At 10% - the approval of at least 10% of the shareholders is required for the requisition of an Extraordinary General Meeting or for an application to the company Law Board for relief in the event of minority oppression or mismanagement of the company

At 26% - the approval of at least 75% of the shareholders (a special resolution) is required in order to inter alia:

- alter the Memorandum and Articles of the company

- change the name of the company

- repurchase the company’s shares

- change the registered office

- liquidate the company

At 51% - the approval of at least 50% of the shareholders (an ordinary resolution) is required in order to inter alia:

- alter/increase the share capital

- declaration of dividend

- to increase or reduce the number of directors

- to remove directors

- to appoint officers

Grey areas

Investors engaged in venture capital and private equity transactions in India generally insist on shareholders affirmative rights embodied in protective provisions in the definitive agreements and subsequent amendments of the Articles of Association of the investee company. This continues to remain a grey area in Indian law.

Pursuant to obiter dicta i.e. non binding language of the court in Re. Jindal Vijaynagar Steels Limited, if the shareholders in a company are permitted under law to transact any particular item pursuant to an ordinary or special resolution, the shareholders cannot restrict the ability of the company from so acting by placing such restrictions in its Articles of Association.

Therefore, it becomes critical when negotiating affirmative shareholders rights in an Indian transaction or in investing in sectors of the Indian economy in which there are sectoral caps, to consider the importance of certain shareholders threshold limits.

About the author

Shantanu Surpure is a partner at Economic Laws Practice (ELP) in Mumbai. He focuses on venture capital and private equity transactions. He has previously practiced law with a large US law firm in Silicon Valley. Shantanu holds a BA from Brown University/London School of Economics, an MA Juris from Oxford University and a Juris Doctor from Columbia Law School. Shantanu is admitted to practice law in India, California, New York and England and Wales. He can be reached at shantanusurpure@elp-in.com.

Read Shantanu Surpure's Past Columns

Incorporating A Company In Delaware Vs. India (Part II)

Incorporating A Company In India Made Easier (Part I)

Foreign Investment In Retail May Need Creative Structuring