VCCircle News

Reforms Needed To Return India To High Growth - Govt

Madhav Chanchani — Thu, 02 Jul 2009 02:13:22 -0700

India could see growth of around 7 percent this year and more in coming years if it makes sweeping reforms including the removal of fuel subsidies and accelerates infrastructure development, a government report said on Thursday.

The economic survey, prepared by the finance ministry, also said inflation was no longer a worry and called for an urgent return to the targeted fiscal deficit of 3 percent.

Its release comes days before the new government unveils its budget on Monday for the fiscal year ending March 2010. The government is widely expected to expand both the budget deficit and its borrowing to support economic growth.

But analysts said any actual reforms would likely be gradual and the report should be treated as a signal of intent.

"It is wrong to assume everything will be announced in the budget. It is the strategic intent, a clear roadmap. The market should take it positively," said Amitabh Chakraborty, president for equities at Religare Securities in Mumbai.

The partially convertible rupee was little changed at 47.85/86 after the survey release, while the yield on the most traded 2021 federal bond was steady at 7.19 percent. The 30-share BSE index edged higher but later surrendered the gains and was down 1 percent by early afternoon.

India's fiscal deficit ballooned to 6.2 percent in 2008-09 as the government unleashed stimulus spending to insulate the economy against the global downturn.

"It is heartening to see that the survey has seriously raised concerns on fiscal consolidation and gives confidence that the budget will see a good trigger for disinvestment and rationalization of fuel and fertilizers," said Rupa Rege Nitsure, chief economist at Bank of Baroda.

The finance ministry's snapshot of the economy was largely upbeat and said the outlook for a return to stronger growth was achievable if the government embraces reforms.

"India should be back on the new trend growth path of 8.5 to 9 percent per annum provided the critical policy and institutional bottlenecks are removed," the report said.

"It is therefore imperative that the government revisit the agenda for pending economic reforms in the first instance."

The Indian economy grew by 9 percent or more annually in the three years ended March 2008.

Also on Thursday, the government said the wholesale price index fell 1.3 percent in the year to June 20, compared with the previous week's annual decline of 1.14 percent, slightly smaller than analysts had forecast in a Reuters poll.

The annual inflation rate was 11.91 percent during the corresponding week of 2008.

REFORMS

While earlier reform calls from the finance ministry were blocked due to political opposition amid the previous government's power-sharing agreement with the left, prospects for liberalisation of the economy are brighter after the Congress party won a decisive election result in May.

The finance ministry's report called for a selldown in stakes of state-run companies to generate 250 billion rupees ($5.23 billion) annually, reform of fertiliser and food subsidies and an auction of third-generation mobile phone spectrum.

It also called for "greater urgency" to removing hurdles to investment in infrastructure.

While the Reserve Bank has slashed interest rates by 425 basis points since October to revive demand, real rates remain high and continue to act as a brake on loan growth.

"The expectation that there could be further cuts in policy rates and in lending rates may have resulted in investment decisions being deferred," the report said.

It also called for implementation of a goods and services tax by April 2010 to maximise revenues and simplify the tax regime.

The report said government should take advantage of the recent low price in oil costs to free petrol and diesel prices.

Late on Wednesday, India unexpectedly raised gasoline and diesel prices by as much as 10 percent, passing onto consumers some of the recent rise in global oil prices.

The finance ministry urged other steps to improve the investment climate including an increase in foreign investment caps in insurance to 49 percent from 26 percent. It also called for allowing foreign investment in multi-brand retail, starting with food retailing, and urged the removal of price controls on sugar and fertilisers.

Indian Cleantech Companies Raised a Total of $131 Million Last Quarter

Madhav Chanchani — Thu, 02 Jul 2009 02:44:05 -0700

The Cleantech Group along with Deloitte has released preliminary Q2 09 (April-June 2009) results for clean technology venture investments in North America, Europe, China and India, totaling $1.2 billion across 94 companies. The report also says that India accounted for 11% of the total $1.2 billion cleantech investements made this quarter. North America accounted for 66%, while Europe and Israel accounted for 21% and China for 1%.

The report says that Q2 09 total investments are up by 12% as compared to the previous quarter, however, they have declined by 44% from the same quarter last year. The average round size in Q2 09 was $12.9 million which has gone up from $12.3 million in Q1 09.

"Cleantech venture investment has rebounded moderately after free-falling for two consecutive quarters. We are seeing initial signs of recovery in other cleantech asset classes, including recent activity in solar tax equity, increased M&A levels, as well as billions in government stimulus that are being allocated globally to the cleantech sector over the next several quarters," said Brian Fan, senior director of research, Cleantech Group.

The report further says that, Indian cleantech companies raised a total of $131 million in seven investment rounds (of which one deal amount was not disclosed).

The total cleantech investments in India this quarter have gone up by 167% as compared to the previous quarter (January-March 2009). These investments have also increased by 161% as companred with the cleantech investments that were made in India in the same quarter last year.

The country’s largest cleantech deal in the quarter was the Ramky Enviro Engineers’ (REEL) deal in which the company raised $42 million (Rs 200 crore) form Standard Chartered IL&FS Asia Infrastructure Growth Fund, early last month. The private equity fund had bought a minority stake of less than 5% in REEL. REEL is a Hyderabad based waste management company and is a part of the Rs 2,500 crore Ramky Group.

Also, in the last quarter, the most active cleantech investor in the country was IL&FS (Infrastructure Leasing and Financial Services Limited), which invested in two deals. While Ramky Enviro Engineers was one of its investments in the quarter, it also invested around $7 million (Rs 36 crore) in renewable energy company Shalivahana Green Energy Limited (SGEL). Axis Private Equity had also invested $11 million (Rs 54 crore) in SGEL along with IL&FS.

In another cleantech deal in India, solar power firm Cobol Technologies (owned by Deepak and Ratul Puri of Moser Baer), raised $30 million (Rs 151 crore) from the Bermuda-based mid-sized fund house Pangea Capital. The funding was raised in April this year.

In May, electrical energy storage platform developer Deeya Energy Inc raised series C funding of $30 million from Technology Partners, BlueRun Ventures, Draper Fisher Jurvetson, Element Partners and New Enterprise Associates. The funding was led by Technology Partners.

According to the report, the sector that led the cleantech investments in the quarter was the transportation sector, specifically, vehicles, biofuels and advanced batteries. The investments in the segments reflect the attention on the automotive sector and significant government stimulus.

The Solar sector, however, saw its lowest level of investment in the last three years, with only $114 million investments going into the sector. The investments in the solar sector have gone down from a high of $1.2 billion in 3Q 08. The decline in the investments in the sector is largely because most investors, whose portfolios contain significant solar holdings, did not increase their exposure.

“While venture investment in solar is down dramatically, utility investment in cleantech is up. Solar thermal was the leading energy source procured through power purchase agreements in the first half of 2009,” said Scott Smith, U.S. leader of Deloitte's Cleantech practice.

The Cleantech Group accelerates the development and market adoption of clean technologies globally. The company has a global network of investors, entrepreneurs, enterprises, service providers and others. The network receives access to capital, investment deal flow, networking, market leading research and data, sales leads and promotional opportunities.

The Group also provides advisory services for large corporations and governments, publishes cleantech sector industry news coverage and produces the Cleantech Forum events across the globe.

SKS Microfinance Gets Rs 50 Cr Investment From Bajaj Allianz

Sahad P V — Thu, 02 Jul 2009 10:19:51 -0700

SKS Microfinance, India's largest microfinance institution, seems to be in ever need of capital to fuel its growth. The Hyderabad-based non-banking finance company has received a strategic investment of Rs 50 crore from insurance firm Bajaj Allianz Life Insurance.

SKS has so far raised $123.5 million in equity alone from Sequoia Capital and Sandstone Capital, among others. SKS also recently became the first MFI to raise Rs 75 crore via non convertible debentures (NCD) and list the same in Bombay Stock Exchange. Previously it had raised Rs 25 crore via NCDs which was subscribed by Yes Bank. It had also completed a securitisation deal worth Rs 100 crore.

Bajaj Allianz's equity deal with SKS seems to be the culmination of a strategic partnership the firms had with each other. SKS and Bajaj Allianz partnered in April 2008 to launch a micro-insurance product for the rural poor.

The latest round will help SKS Microfinance further improve its capital adequacy ratio requirements. In recent months, SKS has introduced a range of mainstream financial instruments into microfinance.

“An investment in SKS by a mainstream investor such as Bajaj Allianz is a vote of confidence in the company and in microfinance. Investment from a leading private insurer gives SKS greater stability and credibility, as well as a stronger capital base to extend our reach to serve more poor customers,” SKS founder and chairman Vikram Akula stated in a press release on Thursday.

SKS Microfinance currently has a membership base of 4.5 million households and has cumulatively disbursed loans worth over Rs 8,000 crore. It has staff strength of 14,249 across 1,439 branches in 19 Indian states.

With $30-M On Books, Cybernet-SlashSupport Scouts For Acquisitions

Madhav Chanchani — Wed, 01 Jul 2009 23:37:36 -0700

Cybernet-SlashSupport (CSS), a technology operations management company, is aggressively looking for acquisitions with backing from its private equity investors. The firm has $30 million cash on its balance sheet and is looking to grow its topline inorganically. The California headquartered firm, which has its main development centre in Chennai, is looking to acquire a company which could augment one of its four businesslines, CSS interim CEO Sanjiva Singh told VCCircle. “Our goal is to complete a deal in this fiscal,” said Singh.

The revenue size of the taregt firm could be up to $50 million, and the entire acquisition will be funded from the company balance sheet.

The private equity backed firm has four lines of business – enterprise support services, customer support services, remote infrastructure management and outsourced product development. “We are looking at expanding in our present business lines, either by adding scale or by adding newer, deeper capability to those areas,” said Singh. CSS could also look at newer geographical or vertical access through acquisitions.

CSS has raised multiple rounds of private equity funding. SAIF Partners had invested $22.5 million in CSS in 2006, which involved picking up the stake from Baring Private Equity India and some through fresh issue. Then in 2007, CSS raised a $25 million in a round led by Goldman Sachs. Venture capital firm Sierra Ventures also holds a stake in CSS.

At the time it raised funding from Goldman, CSS brought all its group firms under one roof. These were Slashsupport, Synaptris and Ready Test Go.

The firm is being backed by its investors in its acquisition strategy. “SAIF will assist with evaluating potential acquisitions alongside CSS management,” said Ravi Adusumalli, Head of India investing at SAIF Partners. He also sits on the board of CSS.

Besides its global delivery center in India, CSS has centres in Philippines, Poland, Australia and the US. It could look at areas like Latin America.

A Nasscom-McKinsey study is forecasting the revenue of the Indian outsourcing industry to be at $60-62 billion by March 2011, as compared to $47 billion in FY2009. Areas like remote infrastructure management tech services will be a $13-15 billion opportunity by 2013, Nasscom has predicted.

The Indian IT/ITES services has taken a hit due the global economic meltdown, as many of them had most of their clients in BFSI (banking, financial services, insurance). Though hit, CSS has still managed to grow by 25% in FY08. Singh said. The impact has been less as clients are mainly technology firms and its services are non-discretionary in nature. While not disclosing the exact figure, Singh said the revenues in FY08 were a little south of $100 million.

But Singh expects the growth to be “subdued” this year. “Overall the economy slowed down, and that has impacted our ability to garner new clients and new businesses,” said Singh.

The acquisition would help CSS increase its revenues in an economy where new business is hard to come by. “The investment has performed well, but will require acquisitions to accelerate it's growth,” added Adusumalli.

News Roundup: Big TV, Carlyle in Talks to Raise $50-100 Million

Ruchika Sharma — Wed, 01 Jul 2009 22:09:40 -0700

Tech M Now Has 42% Stake in Satyam - On the conclusion of the mandatory open offer to shareholders of Satyam Computers, the new owner, Tech Mahindra, has a little over 42 per cent stake in the company, as against the original plan of acquiring a total of 51 per cent of the equity. The response to the open offer for 20 per cent of Satyam shares - TM had earlier bought 31 per cent by outbidding others - was poor, as the secondary market price was well above Rs 70 per share during the period of open offer (between June 12 and July 1), where the price laid down was Rs 58 per share. (Business Standard)

Govt Defers Decision on UB's Proposal to Raise Rs 708 Crore - The government has deferred its decision on UB Group’s proposal for raising Rs 708 crore by issuing convertible warrants to FirStart Inc, on the recommendation of Foreign Investment Promotion Board (FIPB). According to sources, FIPB had deferred decision on the proposal at its meeting on June 19, saying the Department of Revenue (DoR) had not supported it and DIPP was still examining it. (Business Standard)

Big TV, Carlyle in Talks to Raise $50-100 Million - Big TV, the Anil Ambani group’s direct-to-home services provider, is in final stages of negotiations with Carlyle Group, the global private equity major, to raise around $50-100 million (Rs 240-Rs 480 crore). This is part of the company’s plan to raise $200 million (Rs 960 crore) mainly through equity, for which it has appointed Deutsche Bank as the lead arranger. The DTH service provider intends to use the proceeds for corporate purposes, including expansion of services. (Business Standard)

SpiceJet Appoints Seema Chandra as CFO - SpiceJet has announced the appointment of Seema Chandra as Chief Financial Officer with effect from July 1. Seema brings with her over 25 years of solid, stable work experience, having worked with various corporates including HT Media, Nestle India and Ranbaxy. Her last assignment was as CFO of Mascon Global. (Business Standard)

City Union Bank to Raise Rs 300 Crore Via QIP - The board of directors of Kumbakonam-based City Union Bank (CUB), at its meeting held on June 30, 2009, gave its approval to raise 300 crore through QIP. The money will be used to fund its expansion plan and to increase the networth to Rs 1,000 crore over the next two years. The old generation private bank based in Tamil Nadu is planning to open 70 branches of which 50 per cent would come up in southern states. Currently, it has a branch network of 208. (Business Standard)

ICICI Puts Rs 200 Crore Realty on Sale - ICICI Bank is selling a clutch of commercial and residential properties. The space, totalling 1.39 lakh sq ft, is spread across Mumbai, starting with a 6,800 sq ft commercial space in Apeejay House, Fort. Brokers value the total property at over Rs 200 crore. The biggest chunk is the 65,845 sq ft 'A' wing building of Mafatlal Chambers at N M Joshi Marg in Lower Parel. Another 31,773 sq ft in the basement and third floor of the 'B' wing of the same building has also been put on the block. Also for sale are 32 residential flats in Sundaram-I, Raheja Complex in Malad East, totalling 26,660 sq ft built-up area. (DNA Money)

Quatrro Eyes Stake Sale, Seeks FIPB Clearance - Quatrro BPO Solutions has filed an application to the Foreign Investment Promotion Board (FIPB) for issuing shares to raise funds. Quatrro has been looking to raise around $300-400 million to add to its war chest for acquisitions in verticals such as legal, healthcare and insurance. It has already lined up, and has commitment of, about $300 million from investors, which can be increased depending on the target company. It is also close to finalising an acquisition valued at more than $100 million. (DNA Money)

DE Shaw May Exit 60% in DLF Assets - US-based private equity investor D E Shaw is looking to sell only 60% of its investments in DLF Assets (DAL), the company floated by the promoters of DLF Ltd, according to sources familiar with the deal.Shaw had invested $400 million as convertible preference shares into DAL in 2007 with assurances from the developer of a public listing in 2008.However, with the worldwide real estate market collapsing in 2008, the investor negotiated with the cash-strapped DLF promoters to provide them an exit route. (DNA Money)

JSW Group May Revive IPO Plans - The JSW group may revive its initial public offering (IPO) plans for its two companies, JSW Cement and JSW Energy. The group is reworking on draft red herring prospectuses (DRHPs) and may hit the market in a year. JSW Energy is looking to raise Rs 5,000 crore from the stock market to fund its Rs 12,000 crore, 4000 mw power plant projects. (DNA Money)

Union Budget 09-10: Making A Case For Pass Through Benefits For VCs

Sahad P V — Thu, 02 Jul 2009 03:39:11 -0700

Realising the importance of venture capital funds in promoting the growth of high risk businesses, “pass-through taxation” regime for taxation of capital funds (VCFs) was introduced in 1995. However, the tax regime applicable to VCFs has undergone several amendments since its inception. A clear and stable tax environment, which is critical for the development of VCFs, is what the industry players expects from the Government during this Budget.

Section 10 (23FB) and 115U of the Income-tax Act, 1961 provides the framework for the taxation of VCFs. It envisages that any income earned by VCF from investments in Venture Capital Undertakings (VCU) is exempt from tax in the hands of VCF and the same is taxed on distribution in the hands of the investors in VCF. Thus, essentially it is a tax deferral benefit i.e. income is taxed if and when the same is distributed by VCF to investors.

In its current form, the pass-through benefit is restricted to income from investments in VCUs engaged only in specified sectors, which include biotechnology; information technology; nanotechnology and so on. However, the data on investments channelised through VCF suggests that significant investments have been made in sectors such as real estate, industrial products, media & entertainment, telecom, services and so on, which do not fall within the specified sectors.

Considering, the importance of VCF in these sectors as well and the need to provide impetus to the economy as a whole, there is an expectation to extend the VCF Tax regime to the investments in any unlisted VCUs, irrespective of the industry in which it operates.

VCFs are organised in the form of contributory trusts, where the trustees are the legal owner of the investments in VCU and the investors are the beneficiaries in the trust to the extent of the units held by them. Where VCF earns income from investments in VCUs engaged in non-specified sectors, such income is taxable in the hands of the trustees as representative assessee of the beneficiaries.

The scheme for taxation of trusts provides that in case of a discretionary trust, tax is levied at maximum marginal rate and in case of determinate trusts, income is taxable in the hands of the trustees in the like manner and to the same extent as in the hands of beneficiaries. As per the existing provisions, a trust is said to be determinate when the individual shares of the beneficiaries are expressly stated in the trust deed.

This creates complications since, in case of VCF, the names and share of beneficial interest of the unitholder may not be available as on the date of the execution of the trust deed and hence, it becomes a matter of legal interpretation that trust deed should be read along with the contribution agreement and other documents to ascertain the individual shares of the beneficiaries.

The taxation of determinate trust should be, in principle, based on the aggregate tax liability of each of the beneficiary considering their respective share in the income of VCF. For this purpose, if there are any losses in the hands of a beneficiary then the same should be set off against the share of income from VCF.

Also taxes deducted at source, if any, by VCUs on income distributed to VCF are also available as credit to the investor. However, there are various practical issues in achieving this.

VCFs pay significant amount as investment management fees to the investment manager. Since, VCFs hold investments as capital assets, the deduction is available only in respect of cost of acquisition and cost of improvement on transfer of capital asset.

Since a significant part of the management fees is paid for identifying, analysing and making the investments in VCU, an issue arises whether some portion of the management fees can be considered as a part of cost of acquisition of the shares acquired in VCU.

Although, VCF plays a pivotal role in development of the economy, it is still in its nascent stage in India as compared to the developed economies. Hence with a view to provide a clear and a stable tax incentive framework it will be useful to restore the “pass-through” framework of taxation to VCFs investing in any VCU regardless of the industry or sector. This will go a long way in flourishing VCFs in India.

(The authors are senior tax professionals with Ernst & Young, India)

Tech Mahindra To Go For Preferential Allotment in Satyam

Madhav Chanchani — Wed, 01 Jul 2009 23:51:53 -0700

Tech Mahindra will pick new shares of Satyam Computers through another preferential allotment after getting a tepid response, as anticipated, to its open offer to acquire 20% from existing shareholders.

The open offer which was made at a price of Rs 58 a piece was much less than the ruling stock price which hovered above Rs 70 during the period of open offer. The offer was open between June 12 and July 1. Tech Mahindra said it would disclose the actual additional stake bought in the open offer on July 8.

The IT firm which has earlier picked 31% stake in Satyam as per the deal struck in April, now has the option of subscribing to new shares of Satyam. As per the original purchase condition, if Tech Mahindra didn’t get enough shares to hike its stake up to 51% through the open offer, it could fall back on another preferential allotment.

Tech Mahindra had earlier acquired 302.76 million shares or 31% stake for Rs 1,756 crore. It had then come up with a mandatory open offer to buy 199 million shares(20% stake) from existing shareholders for Rs 1,154.7 crore, translating into total acquisition cost of Rs 2910.7 crore.

The poor response to the open offer will benefit Satyam as a company. This is because the same money will be used to strengthen the balance sheet of the scandal hit IT firm, instead of paying off shareholders.

Gitanjali Gems Acquires 70% Stake in Mobile Retail Chain MobileNXT

Madhav Chanchani — Thu, 02 Jul 2009 02:55:54 -0700

Jewellery makers Gitanjali Gems has acquired a 70% stake in mobile retail chain MobileNXT Teleservices Pvt Ltd. The Bangalore-based firm will now be branded as 'Hoop' and will sell items like fashion jewellery, watches, eyewear, etc. besides mobile phones. MobileNXT has raised funding from TV18, Avendus and some angel investors.

MobileNXT is founded by Vijay Menon (CEO) and Romy Juneja (COO). It has 21 stores in South India, which include outlets in tier-II and tier-III cities. Gitanjali has done the acquisition through its unit Gitanjali Lifestyle Ltd, it informed the exchanges.

The mobile retail market, whose estimated size is Rs 50,000 crore, has seen some M&A activity earlier this year. BK Modi's HotSpot brand of stores acquired a 100% stake in the Indian arm of Dubai-based mobile retail chain Cellucom in an all stock deal in February. Cellucom was operating a JV with RPG Group, which the latter exited in favour of the former late last year.

The sector has attracted interest from private equity players also. Peepul Capital invested Rs 100 crore in Chennai-based retail chain UniverCell, which currently has a presence in South India, in 2007.

Essar Groups' The Mobilestore, which has around 1,400 stores, plans to raise $75 million from private equity investors.

BSE's Cultural Shift: Hires Foreigner, Bankers To Make Itself Slicker

Sahad P V — Wed, 01 Jul 2009 02:22:47 -0700

India's oldest stock exchange Bombay Stock Exchange (BSE) is getting slicker. After the new MD & CEO - the 36-year old Madhu Kannan from New York Stock Exchange - came in, it seems a quiet revolution is underway in the exchange. In his most visible move after he took over as the CEO, Kannan has made three senior level appointments from the investment banking world including a foreigner. For the 133-year old exchange, that is going to be quite a change.

BSE has hired former NYSE executive and investment banker James E. Shapiro as the head of Market Development of the exchange. The other senior executive to join is Dr. Sayee Srinivasan who comes from Chicago Mercantile Exchange. Srinivasan will be the Head of Product Strategy. Former Law & Compliance director of DSP Merrill Lynch, Nehal Vora, is another senior hand to join Kannan's team. He has been appointed as the Head of Planning and Policy. If the first two has joined from today (July 1), Vora is joining on July 23.

BSE would need some aggressive blood. Although the exchange is the oldest and its Sensitive Index (popularly known as Sensex) is the bellwether index, the trading volumes in the exchange has been declining (from 80% 15 years ago to 25% today, according to a WSJ report). The much younger National Stock Exchange (founded in 1992) has garnered most of the volumes and customers.

Kannan told Wall Street Journal in an interview:"Old is great, but let's figure out a way to become more than that. We were effectively a monopoly and now it is hypercompetitive. That requires a cultural shift."

So Kannan's latest appointments seems to be a part of effecting this cultural shift.

Prior to joining BSE, Shapiro was senior managing director of Galileo Global Advisors, a boutique investment bank in New York focused on cross-border M&A advisory. Before that, he worked at NYSE for 16 years in various senior management roles. Shapiro also opened the first NYSE offices in Asia (in Tokyo and Hong Kong) and has been involved in the Indian capital markets since 1997, according to a BSE release. He has a B.A. from Harvard University and an M.A in economics from Yale University.

Dr. Sayee Srinivasan was a Director, Asian Product and Market Development, with the Chicago Mercantile Exchange (CME) Group, based in Mumbai. He has over a decade of experience in developing products across multiple asset classes including equities, interest rates, corporate bonds, and foreign Exchange. Srinivasan has also worked at the National Stock Exchange (NSE) of India, on derivatives market development.

What about Nehal Vora? He has covered equities and investment banking compliance at DSP Merrill Lynch Ltd before joining BSE. Prior to that for 10 years, he was with the Securities and Exchange Board of India (SEBI) in various functions including the Derivatives and New Products Department, covering policy, product and process innovation in areas of derivatives, implementation of T+2 rolling settlement, system of straight through processing for the institutional trades.

Also reports suggest that BSE is planning to go public and is expected to soon file the IPO documents with SEBI (Securities Exchange Board of India). Investment bank Kotak Mahindra Capital is reportedly advising the exchange. BSE is also working closely with SEBI to frame self-listing norms as it also intends to get listed on itself. It also plans to list its shares on NSE.

BSE has strategic investors like Deutsche Börse and Singapore Exchange,while NYSE has backed National Stock Exchange. Kannan will have a challenging task to regain its lost market share, and glory.

Areva Group Puts Transmission & Distribution Division on The Block

Madhav Chanchani — Wed, 01 Jul 2009 04:52:08 -0700

France based Areva Group has decided to raise funds for investments by selling its Transmission and Distribution (T&D) division, which is the principal shareholder of its Indian unit Areva T&D India Ltd. It will launch an open call for bids and will focus on the price offered and the industrial and labor projects. The civil nuclear energy major needs to make investments in order to make further inroads into the renewable energies market, it said in a press release.

Depending on the interest generated, the group will decide on whether to dispose off T&D or not. A potential buyer will be selected before the end of the year, the press release said. AREVA T&D has Euro 5 billion revenues, 31,000 employees and 72 facilities around the world.

Areva has more than 67% stake in the listed Areva T&D India, which is a listed entity. The firm has market capitalisation of Rs 8,686 crore at the close of trading today.

Areva had acquired the transmission and distributions divisions from Alstom in 2004, when Alstom was on the brink of collapsing. The divisions were acquired for an enterprise value of €950 million.

The group is reportedly looking at raising $14 billion (€10 billion) in total by selling stakes and disposing off units.

The company is also mulling selling its stake in Eramet and ST Microelectronics. These stakes, in any case, will remain in the public sector owing to their strategic nature.

The Group’s advisory board has also decided to raise capital from strategic and industrial partners by increasing its capital. The group may sell a 15% stake. The increase will be open to investment certificate holders. The group is also launching an employee shareholders program.

Financial Times reports that the new strategic partners could include Mitsubishi Heavy Industries of Japan and Middle Eastern sovereign wealth funds. The partners would be selected by both Areva and the French government on the basis of strategic and geopolitical criteria. Mitsubishi Heavy Industries (MHI) has reportedly said that it would consider buying a stake in Areva if the French government offers it a stake.