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Shriram City To Sell Windmill Biz; PE Warrant Conversion Put Off

13 April, 2009

Shriram City Union Finance (SCUF) plans to extend the validity of warrants issued by the company to four private equity investors from 12 months to 18 months. The warrants were granted alongside allotment of equity shares on May 3, 2008, SCUF said in a statement to the Bombay Stock Exchange today. The private equity investors are ICICI Ventures (through IDBI Trusteeship Services Ltd), ChrysCapital (through Van Gogh Ltd), Asiabridge Fund I (TPG Newbridge) and Bessemer Venture Partners.

The company will seek approval of this and other proposals at its Extraordinary General Meeting on May 11, 2009.

The other conditions regarding the warrants, which includes price and conversion ratio, will remain the same. The equity shares were subscribed at Rs 400 per share and the current shareholding as of March 30, 2008 stands at ICICI Venture (6.64%), ChrysCapital (13%), Bessemer (2.73%) and TPG Newbridge (1.28%). Another major shareholder is Merrill Lynch Private Equity, which holds an 8.72% stake in SCUF.

The warrants were issued at a subscription price of Rs 40 per warrant, with an option to subscribe to one equity share per warrant at an exercise price of Rs 400. This is higher than the current trading price of Rs 322. The total warrants held by the four private equity players are 3.25 million, and upon conversion will amount to 6.6% stake collectively.

With the warrant conversion price at a premium to current trading price, the investors and the company would be hoping that the share price may come to Rs 400 level in the next six months. Otherwise, the investors can pick up the stake through secondary purchases from the open markets.

SCUF, part of the Chennai-based Shriram Group, is one of the largest retail financiers in the consumer durable segment. In September last year, Shriram Group sold a 49% stake in Shriram Retail Holdings Ltd, the holding company of of SCUF, to Texas Pacific Group (TPG). Through this deal, TPG indirectly acquired upto 26.7% in SCUF, and has made an open offer for another 20% stake in the firm. 

Warrants have become tricky issues for private equity players with crash of markets from levels reached in January 2008. In February this year, private equity major Warburg Pincus converted warrants held by it in Havell’s at a high premium of Rs 690 per share as compared to the then prevailing market price Rs 110-120 per share. But the warrants held by private equity funds in Shriram City Union Finance are optional.

Selling Non-Core Assets

SCUF has also decided to sell its shareholding in non-core assets. These include selling its holding in its windmill business in Tamil Nadu and Karnataka, including assets like plant, machinery, etc. SCUF also plans to sell and transfer stake in Shriram Life Insurance Company Ltd and its wholly owned subsidiary Shriram Non Conventional Energy Ltd.

Interestingly, Shriram Group firm Shriram EPC has promoted along with Bessemer Venture Partners a renewable energy company, Orient Green Power Ltd.


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Shriram City To Sell Windmill Biz; PE Warrant Conversion Put Off

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