Private equity firms are renegotiating done deals and some are even stopping mid-way in multi-tiered transactions due to serious valuation drop in the stock market. The latest victims to the changed fortunes of the market are Temasek-India Equity Partners deal with Maharashtra-based media group Lokmat and Blackstone’s deal with Nagarjuna Construction. If these are the high profile deals, there could be many which have fallen out but are not out in the open yet.
According to sources, in the case of Lokmat, the investors and the company have decided to renegotiate the deal afresh. So it will be a completely new deal as opposed to the earlier one of which the term sheet was signed a year ago. Recently, Foreign Investment Promotion Board also had taken up the proposal. Temasek and IEP together had proposed to invest Rs 163 crore in Lokmat (see more detailshere). The deal specifics were finalised a year ago, while many things have changed in the last one year. Now, sources, say it will be a completely new deal for the company and the investors.
Similarly, Blackstone which had picked up around 9% in Nagarjuna Construction last year, is not going ahead with the second tranche of fund infusion into the firm.
Though these transactions have been affected by the change in market valuations, incidentally both the proposed investments were also facing roadblocks at the FIPB, the top government body which monitors and clears foreign investment into India.
Early this year Citigroup Venture Capital International had decided not to ahead with an announced deal with real estate developer Akruti City after the first round of global market crash in January.
In the case of Nagarjuna Constructions, FIPB has rejected proposed allotment of convertible share warrants to Blackstone on the pretext that the construction firm has been operating as a 'foreign-owned Indian holding company' without prior permission. It has been asked to first pay a penalty to RBI and then seek a fresh permission from the FIPB to offload an additional 3.5% stake to Blackstone.
But Blackstone is not complaining. It was to pick 9.1 million convertible share warrants at a conversion price of Rs 225 each, translating into a deal worth Rs 205 crore. This was the second tranche of investment planned by the private equity firm in the company. In August 2007, Blackstone struck a deal to invest about Rs 616 crore to pick up a 12% stake. This was a two-tiered transaction in which it was to get convertible warrants in the second leg.
Given that Nagarjuna's stock price is now trading at around Rs 65 it is unlikely that Blackstone would have gone ahead to convert the warrants even if the government had allowed the transaction to move. Not surprisingly then Nagarjuna is now reportedly considering to come out with non convertible debentures to raise funds.