Restaurant chain Barbeque Nation Hospitality Ltd, which counts homegrown private equity firm CX Partners as a backer, is facing regulatory headwinds to its proposed initial public offering with the Securities and Exchange Board of India temporarily suspending the share sale process.
The capital markets regulator has kept the issue “in abeyance pending regulatory action for past violation”, SEBI said in its latest weekly update on public issues.
Barbeque Nation had highlighted a few past violations as risk factors in its draft red herring prospectus.
Sayaji Hotels Ltd, one of the promoters of Barbeque Nation, had failed to comply with SEBI’s minimum 25% public float requirement and also separately violated regulations on insider trading and takeovers.
The hotel company’s promoters, Kayum Dhanani and members of the Dhanani family, are also promoters of Barbeque Nation.
According to the draft prospectus, Sayaji Hotels had not complied with the minimum public shareholding requirement and SEBI had referred the matter of the delay in compliance for adjudication.
Sayaji Hotels also received a show-cause notice in February for its failure to report trades by certain promoter entities under SEBI’s Insider Trading Regulations, 1992.
Separately, Raoof Dhanani, a promoter and director at Sayaji Hotels as well as Barbeque Nation, was issued a show-cause notice in January for violating SEBI’s Takeover Regulations, involving Sayaji Hotels during the open offer of Liberty Phospate.
According to the draft prospectus, Sayaji Hotels had replied to the show-cause notice and stated that while it was in compliance with the reporting requirements, it was “unable to trace the copies of intimations made to the stock exchanges”. The prospectus also shows that consent applications to settle the matter of violating the Takeover Regulations are pending before SEBI.
Promoters and directors will be liable to pay monetary penalties of SEBI issues any adverse order, the restaurant chain said in the prospectus.
“It is not a significant issue. The promoters will pay some fine, if not paid already,” said a person familiar with the development, asking not to be named.
The company had filed its draft proposal with SEBI on 14 August.
The proposed offering comprises a fresh issue of shares worth Rs 200 crore and a sale of 6.18 million shares by promoter and managing director Kayum Dhanani, other members of the Dhanani family and CX Partners. The PE firm plans to sell a bulk of its holding in the company.
The IPO will result in a 31-32% stake dilution on a post-offer basis. The issue size is estimated at Rs 700-900 crore ($109-140 million), people familiar with the development had earlier told VCCircle.
The offering will likely value the Bengaluru-based restaurant chain at Rs 2,000-2,200 crore, as per VCCircle estimates.
Barbeque Nation’s IPO will be the first public offering by a restaurant chain in more than five years. SAIF Partners-backed fine-dining chain operator Speciality Restaurants Ltd, which owns popular brands such as Mainland China, Oh! Calcutta and Sweet Bengal, went public in May 2012.
Kolkata-based Speciality Restaurants had mobilised over Rs 175 crore and joined other listed peers such as Domino’s Pizza India licensee-Jubilant Foodworks Ltd and McDonalds India licensee Hardcastle Restaurants Pvt. Ltd.
Barbeque Nation has hired IIFL Holdings, Edelweiss Financial Services, Jefferies India and SBI Capital Markets as the merchant bankers for the IPO.
The company has also appointed Cyril Amarchand Mangaldas as the legal counsel in the IPO process. The merchant bankers have appointed S&R Associates and Herbert Smith Freehills LLP as their domestic and international legal advisers, respectively, on the IPO.
The restaurant chain was founded in 2006 and had 81 outlets across the country as on 31 March 2017, according to the draft prospectus. It has one restaurant in Dubai and has also granted franchise rights for one of its Barbeque Nation restaurants.
It offers cuisines including Mediterranean, American, Asian and Indian, and also allows customers a hand in cooking their own food through its ‘Do-It-Yourself’ concept.