Private equity firm Samara Capital Partners has increased its stake in BSE-listed Asian Oilfield Services Ltd. The PE firm, which was already the single largest shareholder with a 13.3% stake, has picked up an additional 4.05 million shares through a preferential allotment that will take its holding upto 35.9% making it a promoter of the oil exploration services firm.

It has triggered the open offer clause to acquire additional 20% stake, pursuant to which Samara has announced the offer at Rs 61.2 a share(the same price at which Samara is subscribing to the preferential allotment) that will cost the PE firm Rs 18.8 crore, assuming it manages to buy all shares from the pubic.

This seems unlikely as the stock shot up 3.7% to closed at Rs 67.35 on Wednesday. Although the open offer price would dissuade some punters from building more positions in the counter, expectations of better management under Samara could restrict investors from participating in the open offer. Asian Oilfield provides drilling and seismic services to oil firms.

Samara picked the additional shares at Rs 61.2 per share translating into further investment of Rs 24.78 crore. This has brought down the average cost of acquisition significantly for Samara.

Samara had picked up stake in Asian Oilfield for Rs 28.5 crore at Rs 190 each in December’07. It had also subscribed to 750,000 partly paid up warrants convertible into equity shares at Rs 190 each. However, on July 21, 2009, these warrants were forfeited by the company due to non receipt of balance subscription price within stipulated period of 18 months from the allotment date. So Samara’s total investment in the company is about Rs 30 crore (including 10% upfront payment for the warrants).

With the fresh preferential allotment its total investment will move upto Rs 54.78 crore translating into average share price of Rs 98.7 as against the current cost of acquisition of Rs 200 each. However, this would still mean value erosion of around 31.6% to the last traded price.

The question is how will Samara Capital-- founded by former Goldman Sachs and Citigroup executive Sumeet Narang that has investments such as pharma retail chain Guardian Lifecare-- recoup its money?

In particular analysts raise the red flag on two counts: resignation of its chairman and director Satya Pal Talwar (former deputy governor of the Reserve Bank of India) & zero business done by the company for the three months ended September’09.

The management explained nil revenues to "poor show due to seasonal nature of job" but in the same period its key competitors Citigroup Venture Capital-backed Shiv Vani generated revenues of Rs 320 crore while Alphageo had sales of Rs 37 crore. Asian Oilfields had reported revenues of Rs 61.7 crore with a net profit of Rs 5.3 crore in FY09.

Meanwhile, as a part of the proposed preferential allotment that would make Samara Capital a promoter of the firm, Gautam Gode managing director of Samara Capital has now become promoter nominated director. Before joining Samara, Gode(a Princeton grad who followed it up with IIM-A degree) was with Citigroup’s Corporate & Investment Banking business.

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