Jain Irrigation Systems Ltd, India's largest micro-irrigation firm, said on Friday it is looking to raise Rs 792 crore (around $120 million) by issuing shares in the company and its processed food subsidiary to Mandala Capital and the company's promoters.
The transaction would mark one of the single-biggest investments in the country's food and agriculture sector.
Mandala Capital will invest around Rs 681 crore ($103 million) of the total while its promoters will put in the remaining amount.
The firm started investing in Indian food and agriculture businesses last year. It has backed Gati Kausar, Godavari Biorefineries and Sustainable Agro Commercial Finance so far.
As per the deal, the irrigation company's Jain Farm Fresh Foods Ltd unit will raise Rs 396 crore ($60 million) from Mandala Capital by issuing preferential shares and compulsorily convertible debentures (CCDs). Upon conversion of CCDs in five years, Mandala is likely to get a stake of either 14.08 per cent or 17.13 per cent in Jain Farm depending on its performance.
Separately, Jain Irrigation, will raise an equal amount by making a preferential issue of CCDs and warrants. While Mandala will invest Rs 285 crore (around $43 million) through CCDs at 5 per cent annual coupon, its promoters will invest Rs 111 crore (nearly $17 million) via warrants.
The CCDs will be converted into ordinary shares of Jain Irrigation within 18 months from the date of allotment at Rs 80 apiece or at a higher price as determined in accordance with the applicable rules of the Securities and Exchange Board of India.
Jain Irrigation managing director Anil Jain said that, at the higher end of the agreed range, the valuation placed on Jain Farm Fresh by Mandala's investment is almost equal to the current market value of the parent company. “This equity issuance is highly value accretive for the company and a game changer," he said.
Jain Farm Fresh will be valued around Rs 2,500-3,000 crore as part of this transaction. Jain Irrigation has a market value of Rs 2,909 crore.
Shares of the parent company declined 3.6 per cent to end at Rs 65.65 in a flat Mumbai market on Friday. The fundraising is at a 20 per cent premium to the market price.
Mandala Capital will have a stake of around 7.3 per cent in the listed parent, as per VCCircle estimates. It would join others like Mount Kellett and IFC as PE investors in the company.
YES Securities acted as financial advisors to Jain Irrigation for this transaction.
In August, Jain Irrigation had announced hiving off its food business to wholly owned unit Jain Farm. This was to be a precursor to independent fundraising, as it was looking to create a strategic focus on the fast-growing food business and consequent value-creation opportunities.
The food business comprises manufacturing units at Jalgaon in Maharashtra, Vadodara in Gujarat, and Chittoor in Andhra Pradesh. It also includes indirect subsidiaries that carry on food business activities, namely SQF 2009 Ltd in the UK and Cascade Specialities Inc in the US.
Jain Irrigation is one of the largest players in the agro-industrial business in the country and controls a large chunk of the irrigation market, particularly in micro and drip irrigation segment.