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Promoters Make Open Offer In PE-backed Vaibhav Gems

28 March, 2012

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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5 Comments
Nikunj Bubna . 6 years ago

The way the words come together in this article, gives a lay-man a strong impression that Warburg has been a bad omen for Vaibhav Gems 😉

Unfortunate for Warburg, but reading this as well as a recent ET front page article, one can safely conclude that PE funds would do better if they stick to the more attractive unlisted space rather than doing PIPEs

eb . 6 years ago

JAI HO

even nalanda can make loss

Guest . 6 years ago

Honest article.

One would have believed that valuations in unlisted space are higher and therefore less lucrative.

Now someone says PIPE deals may be riskier. Why should PIPE be less lucrative? Do you have difficulty getting an exit?

And why should unlisted firms give better returns? Do the broad public investors not understand valuations? Are listed valuations not used as a yardstick /benchmark for comparison?

This is a bit confusing for some investors seeking investment opportunities. For the investor / LP, it looks like in almost scenarios, risk levels have gone up a lot. It looks more like very few things work out.

Anand . 6 years ago

To say “move out of their comfort zone and look at relatively early stage opportunities which can be backed & scaled up fast.” is very diffficult in reality.

It is not even a professional’s game to “scale up fast” in today’s date in India. Extremely few such opportunies might exist.

Indeed a pipeline is lacking. But to presume “scaling up” simply by investing in early stage is a very tough task. It is always a challenge to create good cos. Moreover its not like there is no dogfight in this space!

Gaurav . 6 years ago

This observation “Just a wild thought- Why can’t a jazzy Indian Paneer Tikkas chain spread its wings worldwide successfully like McDonalds to cater to the vast Indian-origin population globally? Why don’t PEs actively hunt for & back such opportunities? They could be in apparels, hospitality, consumption space, etc”., indeed looks like a wild thought.

Investors ARE in these spaces. For whatever reasons they have burnt their fingers after years of patience.

This point is not related, “IPO would not have devolved then, Jai Corp would not be valued exorbitantly some time ago & Piramal Healthcare would not be valued below net cash today.” I think what the other commentator is suggesting is that public listed markets are more transparent because of large number of buyers and sellers. So the pricing should be atleast more efficient than unlisted entities.

Promoters Make Open Offer In PE-backed Vaibhav Gems

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