Private equity investor CX Partners is in advanced talks to pick up stake in Kishore Biyani promoted financial services provider Future Capital Holdings Ltd, two people with direct knowledge of the matter said. A number of private equity investors have evinced interest in the public-listed company and CX Partners has emerged as a front runner, people briefed with the matter told VCCircle.
“CX Partners may pick a significant minority stake,” one of the persons said on conditions of anonymity.
An email sent to Ajay Relan, founder and managing director of CX Partners did not elicit any response and V Vaidyanathan, vice chairman & managing director of Future Capital Holdings, declined to comment on the developments.
Public listed firm Pantaloon Retail India owns 53.6 per cent stake in Future Capital while the group promoter Biyani held 7.3 per cent in the firm as of December 31, 2011.
Last week, Biyani and Vaidyanathan had let convertible warrants cumulating to 10 million shares lapse as the share price was much lower than the price at which it was to be converted into shares.
However, early this week, Biyani transferred 2.6 per cent to Vaidyanathan who now holds around 7.37 per cent in Future Capital.
Future Group chief Kishore Biyani had been looking at unlocking the value in his financial services company and raise money to pare rising debt of some of his other group firms such as Pantaloons Retail India. As on date, the standalone debt on the books of Pantaloons Retail India is pegged at Rs 2,173.1 crore and consolidated debt of Rs 7,846.1 crore.
Sources say Biyani is looking to sell atleast 26 per cent stake to a strategic investor. This would trigger an open offer for the public listed firm.
This could potentially cost CX Partners as much as Rs 435 crore ($85 million) for buying upto 51 per cent of Future Capital.
If CX Partners picks 24.9 per cent stake(to avoid making an open offer), instead, through a secondary purchase from the promoters, it may have to shell out around Rs 212 crore ($42 million) as per latest market cap of the firm. If it buys the same stake through a preferential allotment at the latest market price, it would have to shell out around Rs 281 crore ($55 million), as per VCCircle estimates.
Earlier, Hyderabad-based media house Deccan Chronicle was in the last stages of buying a stake in Future Capital Holdings in yet another business diversification(the firm earlier oved into sports entertainment with a franchise for Deccan Chargers team at IPL). However, the deal could not fructify and the company has seen interest from other players.
Last year, Biyani appointed investment bank Morgan Stanley to look for a buyer for a strategic stake sale in Future Capital.
Private equity investors have been investing in non banking financial companies as they provide a proxy exposure to a play on banking sector in India. As per VCCEdge, the research platform of VCCircle, there were 34 deals worth $691.76 million during 2011 and in 2012, so far, there have already been 12 deals worth $224.1 million.
Among the more high profile transactions last year, KKR India and IFC invested in Kolkata-based public listed firm Magma Fincorp Ltd.
If it indeed goes ahead to ink the deal, it would fit in with CX Partners’ other strategy to float a special situations fund- essentially an NBFC kind of platform which will look at all types of financing, including distressed balance sheets, mezzanine and last-mile financing, for recapitalisation and acquisitions. The intent could also be to buy and build-out upon this.
Future Capital Holdings' advances grew to Rs 4,257 crore as on 31 December 2011 from Rs 2367 crore as of 31 December 2010. The company's gross NPA ratio stood at 0.04 per cent as on 31 December 2011. The net NPA ratio was nil.
Future Capital’s net profit almost trebled to Rs 28.9 crore in the quarter ended December 2011 as against Rs 10 crore during the same period previous year. Revenue also more than doubled to Rs 181 crore in the same period.
Two years ago, Future Capital Holdings was carved into two separate lines of businesses with private equity business being spun off as Everstone Capital and all non-investing businesses such as insurance, retail financial services and wholesale credit being grouped under FCH. This came as an amicable split between Biyani and Sameer Sain who moved out of the JV with Everstone side of the business.