Future Capital Holdings Ltd has transferred its loan amount aggregating to Rs 170 crore in Hyderabad-based media group Deccan Chronicle Holdings Ltd, against which the promoters had pledged 54 per cent stake in the company, to retail king Kishore Biyani.
Biyani who still controls public listed Future Capital, has struck a deal to sell almost the entire stake held by his Future Group in the financial services firm to private equity firm Warburg Pincus. Future Group holds majority stake in Future Capital through Pantaloon Retail, a public listed group flagship of Biyani.
In a disclosure late on Friday, Future Capital disclosed its board metand reviewed the loans given to Deccan Chronicle Group aggregating Rs 170 crore. “To safeguard the interest of the stakeholders of the company, the promoter group of Future Capital Holdings has agreed with the company to take over the entire loan exposure of the company to the Deccan Chronicle Group at book value.”
With this Future Capital will cease to have any exposure to the Deccan Chronicle Group.
Deccan Chronicle scrip hit its all time low before climbing up and last traded at Rs 13.55 a share on the BSE, up 1.88 per cent in a flat Mumbai market on Friday. At this price the 54 per cent stake is worth Rs 177.6 crore.
This development makes for a dramatic turn of events for Deccan Chronicle, which was reportedly a suitor to buy out Biyani before Warburg Pincus snapped the deal (more on that later).
Warburg Pincus-Future Capital hurdle race:
Warburg Pincus is acquiring majority stake in Kishore Biyani-promoted Future Capital Holdings through a mix of fresh issue of shares and stake buy from the promoters, in a deal that would cost the PE firm over $110 million.
The PE firm has also come up with an open offer to acquire more shares, though the offer has got delayed.
The Warburg Pincus-Future Capital deal has been facing various roadblocks. First it was Future Capital’s wholly owned subsidiary Myra Mall Management Co Ltd, which is engaged in the business of leasing and acquiring commercial assets across the country. The PE firm was reportedly facing roadblocks from FIPB, the nodal government body clearing foreign investment in India, as Myra Mall is not a project developer.
Existing norms do not allow foreign funds to invest in any real estate asset company unless it is developing a green field project with a minimum area of 25 acres. Myra Mall Management states in its profile that it does not develop assets.
Asok Shinkar, chief financial officer of Future Capital, had earlier told VCCircle that Future Capital has been trying to sell Myra Mall, a non-core asset, for months.
Myra Mall was sold to a firm controlled by industrialist Jaydev Mody for Rs 97.77 crore ($17.77 million).
The buyer of the business is Providence Educational Academy Pvt Ltd, a trustee of AAA Holding Trust related to businessman Jaydev Mody and family. Mody is the promoter of public listed hospitality, entertainment and real estate firm Delta Corp. He is also the husband of high profile corporate lawyer Zia Mody of AZB & Partners.
Interestingly, AZB represented Warburg Pincus in the deal with Future Capital.
However, the deal was facing fresh problems. With Deccan Chronicle promoters pledging 54 per cent stake in their public listed firm to Future Capital due to outstanding loans, the PE firm could have become an indirect owner of the print media company. This could have proved to be a problem as existing FDI norms do not allow foreign holding over 26 per cent in print and news media.
The Reddy-Biyani Story:
Biyani has picked the outstanding loan receivable from Future Capital when his group is itself looking to deleverage Pantaloon Retail’s balance sheet. The group flagship which runs several retail chains under different formats has debt of around $1 billion.
Early this year it announced a deal to spin out its apparel retail business as a separate listed firm and sell a majority stake in the venture to Aditya Birla Nuvo, one of the largest branded fashion apparel players in the country. The AV Birla Group firm will invest at least Rs 800 crore ($152 million) in a two tiered transaction.
But more interesting is the case of how Reddys (promoters of Deccan Chronicle) who were looking to buy out Biyani in Future Capital now sees majority pledged stake of their own company transferred to Biyani.
Debt laden Deccan Chronicle Holdings, which also owns the Indian Premier League team Deccan Chargers, has been facing serious challenges in servicing its debt besides its promoters facing allegations of forgery and misrepresentations.
In a winding up petition filed by IFCI, the lender said Deccan Chronicle’s liabilities running into thousands of crores of rupees may lead to the erosion of the entire net worth of the company and make it commercially unviable and insolvent.
Meanwhile, there have also been reports of DB Corp emerging as a suitor for buying out Deccan Chronicle’s print business. Deccan Chronicle has said it has not been approached by anybody to acquire the print business while D B Corp has said it denies 'having arrived at any agreement for acquisition for print business of Deccan Chronicle'. DB Corp also happens to be a former portfolio company of Warburg Pincus.