IL&FS Private Equity-backed floriculture firm Karuturi Global is raising Rs 92.6 crore or $20.7 million from its promoters, besides investments from ad-for-equity media investor Bennett Coleman & Co Ltd (BCCL) at a huge premium to current market price.
The fund-raising is through a mix of fresh share issue to BCCL and equity convertible warrants issue to the promoter Sai Ramakrishna Karuturi who will subscribe to 39.4 million shares which will be convertible within 18 months.
The promoter will invest around Rs 85.1 crore or $19 million in total. On conversion, this will push up promoter holding which has significantly diluted, with fresh issue in the recent past to other investors. Promoter holding is estimated to move up to 21.8 per cent from 18.59 per cent at present.
BCCL will own around 0.4 per cent of the firm by investing around Rs 7.5 crore or $1.7 million. Interestingly, both the preferential issue is at a price of Rs 21.6 per share. Karuturi Global’s share price rose 6.7 per cent and is trading at Rs 12.7 per share. This means the fresh issue is at a premium of over 70 per cent to the market price.
While the promoters picking warrants at a premium makes sense, given the precariously low ownership, this could have been achieved through the creeping acquisition route at a cheaper cost. On the other hand, BCCL’s investment at a premium is probably explained by an implicit ad-for-equity transaction where the media firm does not actually invest the money, but book it through ads for Karuturi for the same amount.
This fund-raising programme comes in quick succession to its private equity placement, besides an overseas share issue last year. It had raised Rs 75 crore ($16.1 million) from funds managed by India’s largest private equity firm IL&FS Investment Managers Ltd, in addition to $24 million through a GDR issue as a part of its game plan to expand its agri and floriculture businesses.
Earlier this year, three foreign institutional investor funds – Emerging India Focus Fund, India Focus Cardinal Fund and Elara India Opportunities Fund had converted warrants into equity, together picking around 22.8 per cent. The warrants were subscribed by these investors in mid-2009 at Rs 12 each.
Karuturi, the world’s largest producer of roses, is engaged in three businesses – floriculture, gherkins and information technology. The company, also backed by serial investor C Sivasankaran who picked a small stake through open market purchase some time ago, reported consolidated revenues of around Rs 450 crore for the first nine months of the last fiscal.
In late 2010, it had acquired 54 per cent stake in Mumbai-based Florista (a chain of floral boutiques) at an undisclosed amount, as a part of its expansion drive.