South-based retail major Subhiksha which is in the process of reverse merger with a small time firm that it acquired in June'08 is now looking to tap into foreign institutional investors(FIIs) for raising $80-100 million(~Rs 400 crore). The deal would involve selling close to 9%stake of the merged entity Subhiksha India, to a group of three FIIs, according to this report.

This deal would value the retail major at around Rs 3,800-4,000 crore, much higher (around 65% premium) than the valuation at which Wipro's Azim Premji picked a 10% stake in the unlisted retail firm for Rs 230 crore. This deal valued Subhiksha at Rs 2,300 crore. The report says that the fund would be used to expand the grocery retail chain and also to foray into the consumer durables retailing.

Subhiksha had in June taken over a little known company, Blue Green Constructions listed on the Chennai Stock Exchange. As per the plan the retail chain would be merged with this listed entity and then be listed on the BSE and NSE. FIIs are permitted to invest up to 24% in listed retail companies as portfolio investments. This is even as there are restrictions on foreign investment into retail.

With the reverse merger, all the investors in Subhiksha would see a proportionate dilution in their stakeholding. While ICICI Ventures holds 23%, the promoters led by R Subramanian hold 59%. The other significant investors are Azim Premji with 10 percent and ICICI Prudential with 5% stake.

The discount retail chain has had a fast paced expansion over the last two years and now has 1,590 stores dealing with grocery and mobile phones. It expects to enter durable retailing by early next year and is targeting to have over 100 stores up and running located across 65 cities.

Even as it has been expanding at a breakneck pace, lately there have been reports that it has been facing cash flow problems and so Subhiksha has been delaying payments to its vendors. Reportedly, the firm is now facing the problem of supply as a result of payment issues. It started with fruits and vegetable suppliers and now even FMCG firms are complaining of payment problems from their distributors.


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