Citigroup Venture Capital (CVCI) could be eyeing almost 6x net returns on its partial exit from power generation firm Ind-Barath Power Infra, which is looking to raise as much as Rs 1,140 crore through fresh issue of shares in a public float that will also see partial exits from some financial investors including CVCI, UTI Ventures’ Ascent India Fund and the promoter group.

The firm proposes to utilise a portion of the money raised through fresh issue to fund equity contribution in its subsidiaries to part finance the construction and development costs associated with three projects: 300 MW coal-based power project at Thoothukudi (Tamil Nadu), 700 MW coal- based power project at Jharsuguda (Orissa) and 660 MW coal-based power project at Thoothukudi again.

Although the company is yet to announce details of pricing of the issue, as per its proposed pre-IPO deal, where it plans to raise as much as Rs 170 crore, it could be eyeing a per share value of around Rs 586. If this is taken as a benchmark then large private equity investor CVCI could be looking at almost 6x net returns on its three-year-old investment in the firm, as per VCCircle estimates.

CVCI has put in a little over Rs 375 crore through equity purchase as well as convertible preference shares. If we consider the issued equity and the converted preference shares, the average cost of purchase (of equity) till date is estimated at around Rs 75 a piece. If the price is indeed around Rs 586 a piece, then CVCI could be encashing around Rs 375 crore in the part exit and thereby taking out the principal.

The PE firm’s remaining shares would be valued over Rs 1,000 crore ($210 million) besides the outstanding preference shares whose conversion would depend on the valuation of the company before the issue.

UTI Ventures (now known as Ascent Capital) has put in around Rs 40 crore through equity purchase and convertible preference shares and its cost of investment (of equity) is pegged around Rs 69 a share so it will also make a clean profit in the part exit. It is selling around 30% of its total holding (excluding the outstanding preference shares).

However, the financial investors will not be taking out all the profits from the investment as they have entered into an upside agreement with a promoter group entity. Under the respective deals, the PE investors need to pay a certain sum of the upside they get from the transaction as per the agreement to the promoter firm. The payment term is different for the set of investors and is a certain variable of the extra that they make over and above the amount that gives them IRR of 25%.

Besides CVCI and UTI Ventures, other recent investors in Ind-Barath include names like Sequoia and Bessemer Venture Partners who picked shares last October. Sequoia has put in around Rs 183 crore and Bessemer has invested around Rs 115 crore. Both Sequoia’s and Bessemer’s average cost of purchase is pegged at around Rs 74/share (excluding convertible preference shares).

CVCI owns around 23% stake (through multiple investment entities) before the issue in addition to some convertible preference shares making it the second largest shareholder of the company. Sequoia has 8.8%, Bessemer has 5.4% and UTI Ventures’ has 3.7%.

In total, Ind-Barath had raised Rs 715 crore from the private equity investors in multiple rounds led by CVCI. The expected valuation could result in multi-bagger deals for the PE firms in their three-year-old investment.

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