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Blackstone exits construction firm NCC

25 October, 2016

Private equity firm Blackstone has fully exited construction firm NCC Ltd after selling its remaining 2.67% stake on the open market on Friday.

The firm made around Rs 135 crore to Rs 140 crore through the stake sale, a person aware of the development told VCCircle on the condition of anonymity.

Shares of NCC closed at Rs 92.35 apiece on the BSE in a strong Mumbai market.

YD Murthy, executive vice president of finance at NCC, confirmed that Blackstone has fully exited the firm. He declined to comment further. Blackstone declined to comment.

Blackstone has been offloading shares in NCC since August.

According to the person aware of the development, Blackstone had sold shares amounting to less than 0.5% stake in NCC in the past few weeks.

The person said that the PE firm may have made up to Rs 500 crore in total from the sale of its 9.9% stake in NCC.

Last month, the PE firm pocketed around Rs 150 crore by selling a big chuck of shares. In August, it earned around Rs 145 crore to Rs 150 crore in the first tranche of share sale .

Blackstone invested in the company in 2007, at peak market valuations. It had initially invested Rs 409 crore to pick up a stake of about 10% in NCC and had also got the right to subscribe to equity convertible warrants. The PE firm eventually did not subscribe to the warrants, blaming it on delay in approval for the deal from the Foreign Investment Promotion Board, the nodal government body clearing foreign investments in the country.

It had originally bought shares at Rs 202.5 each. The PE firm purchased additional shares in early 2011 and then participated in the rights issue of NCC in late 2014. It had brought in around Rs 100 crore more into the firm, it is learnt. 

In the rights issue, Blackstone got fresh shares at just Rs 20 each. This  significantly brought down its average cost of ownership, the person cited above said.

The person also said that Blackstone picked up an additional 5% stake by investing through participatory notes via third-party entities when the share price was much lower. As a result, it recovered its investment and made some profit in rupee terms.

Murthy declined to comment on investment through participatory notes but said that Blackstone, ChrysCapital and other foreign institutional investors had invested in the firm’s rights issue that raised Rs 600 crore.

Since Blackstone initially invested in NCC, the US dollar has appreciated 67% against the Indian rupee, the person cited above said. The PE firm managed to arrest the slide in its returns by averaging out the cost of its ownership through the rights issue and the participatory note investment, the person added.

Blackstone’s other not-so-great bet was on textile firm Gokaldas Exports Ltd.

In July, it sold another large chunk of shares in Gokaldas Exports. Blackstone had invested in Gokaldas around the same time it bet on NCC, in 2007, just months before the stock market tanked.

For Blackstone, which struck acquired 60.48% of IT services firm Mphasis Ltd from Hewlett Packard Enterprise for Rs 5,466 crore earlier this year, NCC marks the second exit activity from an Indian firm in 2016.

Last year, it sold its majority stake in CMS to Baring Private Equity Asia and also part-exited in the IPO of flavours and fragrance maker SH Kelkar & Co Pvt Ltd. Early last year, it had also sold a stake in auto parts firm Agile Electric. All these were profitable exits for the PE firm.

NCC’s poor show

NCC, once a hot company in the infrastructure construction sector, had suffered from the slowdown in the economy. The firm had previously also attracted ChrysCap and Beacon India Private Equity as investors. ChrysCap exited the firm last year.

While the firm has grown its revenue three-fold since Blackstone invested, its earnings remain low. The firm ended 2015-16 with revenue of Rs 9,583 crore and a net profit of Rs 110.5 crore. This compares with revenue of Rs 3,635 crore and a net profit of Rs 167.5 crore for the year ended 31 March 2008.

The construction firm has been selling assets to cut debt.

In January this year, NCC sold its 51% stake in Western UP Tollway Ltd, which operates a highway project in Uttar Pradesh, to private equity firm I Squared Capital. The deal also involved Gayatri Projects Ltd and its subsidiary Gayatri Infra Ventures Ltd selling their stake to I Squared. The enterprise value of the deal was Rs 575 crore (about $85 million).

A month later, NCC sold its 38% stake in Bangalore Elevated Tollway Ltd to IDFC Alternatives.

In April, NCC signed a pact to sell some additional stake in Sembcorp Gayatri Power Ltd (SGPL) to Singapore’s Sembcorp Utilities Pte Ltd for Rs 301.26 crore (about $45.4 million) in the second tranche of a transaction agreed the previous month.

NCC would receive a net amount of Rs 77.04 crore after adjusting a “mobilisation advance” received from SGPL for executing the project, it had said.

In March, the Indian infrastructure firm had said it agreed to sell a stake in SGPL to Sembcorp Utilities for Rs 352 crore ($52 million).

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Blackstone exits construction firm NCC

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