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Promoters of gem and jewellery exporter Vaibhav Gems have made a voluntary open offer to consolidate their shareholding in the private equity-backed public-listed firm. The promoter group currently owns 13.39 per cent stake and has come up with a public offer to buy 28.5 per cent more, which may cost around Rs 37.5 crore ($7.3 million).

The open offer has been made at a price of Rs 41.75 a share, which may not make it an attractive proposition.

Vaibhav Gems scrip rose 3 per cent after the announcement and was quoting at Rs 43.75 a share on Wednesday on the BSE in a weak Mumbai market.

Since the offer price does not leave scope for arbitrage, the open offer may not provide the promoters with any significant additional quantum of equity holding apart from providing some liquidity to shareholders looking to sell a larger chunk of shares while not sinking the share price.

Vaibhav Gems is backed by Nalanda Capital, which holds 12.97 per cent stake. Nalanda had acquired the minority stake for Rs 94.5 crore through subscription to a GDR issue in late 2007, almost one year after Warburg Pincus acquired over 30 per cent stake in the company and just before the market valuations turned turtle in January 2008.

Nalanda Capital, the Singapore-based and India-focused PE firm founded and headed by former Warburg Pincus India MD Pulak Prasad, had acquired the shares at Rs 230 a unit, which means it is sitting on unrealised loss of 81 per cent on its four-and-a-half-year-old investment.

But it is much better than what Warburg Pincus had to absorb. The marquee PE firm exited its five-year-old investment in Vaibhav Gems with an estimated 92.5 per cent haircut, making it one of the biggest loss-making private equity exits in India. Last March, the PE firm sold its entire 28 per cent stake to a group of high networth investors for Rs 18.4 crore against the purchase cost of Rs 247 crore, according to VCCircle estimates.

Jaipur-based Vaibhav Gems had gone into a tailspin ever since Warburg Pincus picked a large minority stake and followed it with a mandatory open offer that gave it as much as 32 per cent stake in July 2006. The PE firm had originally acquired 27 per cent for Rs 208 crore in February 2006 and added another 5 per cent in the open offer, making it the single largest shareholder of the company, much more than the promoters.

The company went downhill financially with its consolidated revenues shrinking for the second consecutive fiscal ended March 2010 – just about half the figure posted in the year ended March 2008. Although revenue had shot up, the company slipped into the red soon after Warburg Pincus invested in the firm.

For the last four financial years, the company reported total consolidated loss of over Rs 500 crore. However, it has reported a much better performance recently with consolidated net profit of Rs 45.45 crore in the first nine months of the fiscal ended December 31, 2011.

Vaibhav Gems had taken various austerity measures to curb costs and consolidate its business operations to focus on turning around the business. It had closed down its loss-making businesses in Mexico, St Thomas, St Maarten, Alaska, Japan and Thailand to support its core businesses of marketing gems and jewellery via television in the UK and the USA and manufacturing operations in India and China.

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