Multiples Alternate Asset Management, a private equity firm floated by former ICICI Venture CEO Renuka Ramnath, has struck a deal to acquire 10.09 per cent stake in Indian Energy Exchange Ltd (IEX) from PTC India Financial Services for Rs 50.9 crore ($9.7 million). The deal, which is testing a grey area as there are no regulations for foreign investment in power exchanges, values the three-year-old automated online power trading exchange at Rs 505 crore.
In the latest transaction, a Mauritius-based investment arm of the PE firm (Multiples Private Equity Fund I), which raised its maiden fund of $450 million this year, has signed a definitive agreement to acquire 3.06 million shares from PTC India Financial Services at Rs 166.509 a share.
PTC Financial Services holds 19.01 per cent stake (on fully diluted basis after accounting for outstanding compulsory convertible preference shares) in IEX and is selling a little less than half of it to Multiples.
IEX, founded by Financial Technologies (India) Ltd, started operations in mid-2008 and is also backed by institutional investors like Bessemer Venture Partners and Lightspeed Venture Partners.
In October 2010, Financial Technologies disclosed that it had sold shares to foreign venture capital investors at Rs 115.41 a share. This means the latest transaction has been struck at 44.2 per cent premium over a similar secondary sale deal one year ago.
The government’s take on this proposal would be keenly watched as it would then set a precedent for foreign investments in power exchanges.
Another power exchange in the country is Power Exchange India Ltd (PXIL), promoted by National Stock Exchange (NSE) and National Commodity & Derivatives Exchange Ltd (NCDEX), two PE-backed organisations.
Although Multiples has signed the deal for stake purchase in IEX, it is now awaiting regulatory sanction. The firm has sought approval from the Foreign Investment Promotion Board (the nodal body monitoring foreign investment in India) as a cautionary move as power exchanges are not covered under any specific FDI norm.
Commodity exchanges have sectoral cap of 49 per cent foreign investment and a sub-limit of 23 per cent for FIIs with a proviso that no single foreign investor will own more than 5 per cent in such exchanges.
If the government interprets power exchanges as a commodity exchange, Multiples may have to either tweak its share purchase agreement with PTC India Financial Services or bring down its holding to meet the FDI norms.
This is Multiples’ second deal after it closed its debut transaction by picking up a significant minority stake in Dehradun-based Sara Sae Pvt Ltd In August this year. Sara Sae, which manufactures drilling equipment for land and jack-up rigs, will use bulk of the money to finance the buyout of 76 per cent stake, held by NYSE-listed National Oilwell Varco in Sara Sae.
As first reported by VCCircle, Multiples has also been in talks to acquire stake in Barbeque Nation, a subsidiary of the BSE-listed Sayaji Hotels.
Earlier, Multiples’ proposed deal to acquire stake in the public-listed Dhanlaxmi Bank came unstuck after US-based Customers Bancorp Inc. and three PE firms withdrew their planned infusion of Rs 290 crore through a preferential allotment. The Trissur-based private bank had said that Customers Bancorp would not be able to participate in the issue because of “certain regulatory reasons applicable in the jurisdiction of its incorporation.” Due to this, “other proposed investors have also expressed their reservations in subscribing to the preferential issue,” the disclosure to the exchanges added.
Multiples was co-investing, along with Mount Kellet Capital (a private equity firm run by former Goldman Sachs partner Mark McGoldrick) and Wolfensohn Capital Partners (an equity fund promoted by former World Bank chief James Wolfensohn).