Boutique investment firm Taj Capital Partners, which was in the process of investing around Rs 16.4 crore ($3.8 million) in Delhi-based financial services firm Capital Trust Ltd, has called off the deal due to regulatory changes hitting the microfinance sector.
Capital Trust had entered the microfinance sector last year, months before that space was hit by fresh regulatory clamps in the biggest market within India, namely the state of Andhra Pradesh.
“Due to the on-going turmoil/uncertainty prevailing in the microfinance sector, the investor, i.e., Taj Capital Partners Pvt Ltd, has expressed its concern to go ahead with the investment. Consequently, the company would not be able to complete the issue of share/warrants,” Capital Trust disclosed on June 29.
The firm was to raise Rs 16.4 crore through an equal mix of fresh equity issue and convertible warrants. And the upfront equity issue would have given 14.7 per cent stake to Taj Capital.
The promoters, as well as Taj Capital Partners, were to subscribe to 1.3 million equity convertible warrants each that would have given as much as 22 per cent stake to the investment firm post-conversion, thereby triggering an open offer. The proposed investment had buoyed the share price to a high of Rs 119.9 last November. Taj Capital was to pick the shares at Rs 67 a piece.
The scrip hit the lower price circuit of the day to close at Rs 47.65, down 4.9 per cent at BSE on June 29.
Since its microfinance foray, the share price had risen from Rs 11 in February, 2010, to cross Rs 79, after the initial success of SKS Microfinance listing on the bourses.
Capital Trust, founded in 1985, earlier had a joint venture with Kinetic Engineering to finance all ‘Kinetic Honda’ products in northern India in the early 90s. It sold its stake in that venture to Kinetic in 1998 and later started a JV with Development Bank of Singapore for stock broking. Besides microfinance, Capital Trust also planned to distribute a wide range of products to the semi-urban and rural population in India.
The scrapping of the Taj Capital-Capital Trust deal comes amid a contrasting picture of investor confidence in the microfinance sector. Only last week, private equity major Citi Venture Capital International (CVCI) has made its first fresh investment in India since 2008 in the country’s troubled microfinance sector. CVCI has led a Rs 65 crore third-round funding of Bangalore-based microfinance institution Janalakshmi Financial Services. Janalakshmi, founded by former Citigroup banker Ramesh Ramanathan, focuses exclusively on extending micro loans in the urban areas.
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