There are still some investors willing to bet on the textile sector, which has been hit hard by the dwindling exports as global demand (specially US) has crumbled. Anders Povlsen (who is also the man behind Danish clothing retailer Best Seller) is picking up 20.6% stake in fabric and apparel maker Bombay Rayon Fashions (BRFL) for Rs 333 crore ($65 million).
Povlsen is making the investment through a Dutch entity AAA United through a preferential allotment of 18 million shares at a price of Rs 185 per share (27% premium to current market price) representing 20.67% of the expanded capital base. This will also necessitate a mandatory open offer for another 20% stake from existing shareholders. BRFL stock which hit 52 week low on March 4, is up 80% over the last three weeks.
Povlsen owns Denmark’s Bestseller A/S, which is one of the world’s leading retail clothing companies operating more than 1,800 shops and 3,200 franchisee stores.
Although, BRFL management has said that it is a financial investment and AAA United would not get management control, Povlsen could potentially become a bigger shareholder in the company than the promoters if the open offer is successfull in garnering all the shares.
The promoters (Agarwal family) currently own 48.4% (as of December 31, 2008) which would come down to around 39% after the preferential allotment. If Povlsen’s offer garners 20% stake then he would have around 40.6% in the Mumbai-based firm. He would need to shell out close to Rs 322 crore for this additional stake taking the total cost of acquisition to Rs 655 crore ($128 million).
According to the company, the fund infusion is to augment working capital requirements, finance acquisition as well as new projects besides other corporate purposes.
However, this deal could make it tricky if and when BRFL wants to get into retail business as there are restrictions on foreign investment in domestic retail trading.
BRFL already operates retail business abroad. In April 2008, it had acquired the brand ‘Guru’ and other retail business of Jam Session Holding S.r.l (Jam) through its wholly–owned Italian subsidiary of another firm Bombay Rayon Retail Limited (in turn a subsidiary of BRFL). Guru has around 15 retail outlets and 9 franchises spread across Europe (mainly Spain, Italy, Netherlands) besides Dubai.
The company’s shareholding is largely spread over institutional investors including Citigroup, JM Financial, ABN Amro, Mirae, Reliance Capital, Shinsei UTI India Fund besides Bangalore-based garment maker Scotts Garments.