Polyester chips maker JBF Industries is buying out two-thirds of total convertible holdings of Citigroup Venture Capital (CVC) in JBF Global Pte Ltd, Singapore for approximately $ 60 million.
JBF had entered into a memorandum of understanding with CVC in July 2007 wherein the PE firm was slated to bring in $118 million in the Singapore arm through fully convertible securities. The entity was to use the funds to expand international business of the company by acquiring or investing in overseas projects.
However, CVC had apparently raised its commitment and as per an agreement signed in December’07 (just before the stock market crash in January’08) had said it would invest a total for $125 million. Of this, it had already invested $75 million as the first tranche and was to bring in the remaining money soon after.
Assuming no change in capital structure and CVC bringing in the balance amount, CVC could be taking 28% haircut on this transaction, as per VCCircle estimates. JBF did not say why it is buying out a large chunk of CVC’s holding but said in a statement, "This transaction will enable JBF Industries Limited to further strengthen and grow its international operations."
Incidentally, CVC had also invested in the parent company JBF through a preferential allotment in June 2005 when it put in around Rs 55 crore to pick around 25% stake and thereafter made an open offer at Rs 46.5 a share. As of December’09, CVC owned around 21% in JBF and was sitting on unrealised gains of 3.4x on the current market price.
The question is whether CVC could now also be looking to encash its five-year-old investment in JBF with reasonable returns?