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Vishal Retail Sees A Possibility of Deal With TPG

07 June, 2010

Vishal Retail may close a deal with Texas Pacific Group, a private equity fund, or other Indian investors in 2-3 months to raise funds and cut debt at the troubled discount retailer, a top official told Reuters.

“There is a possibility (of a deal with TPG). There is another possibility that another Indian investor comes in and he invests in Vishal,” Ram Chandra Agarwal, founder and chairman of the firm told Reuters in an interview on Monday.

“Till now nothing is clear. Anything can happen,” he said, adding things will be clear in 2-3 months.

Vishal Retail, which runs a chain of 170 stores across the country, ran into difficulty in late 2008 after it failed to raise equity amid an economic downturn which also hit its sales, leaving it with a debt of about 7.35 billion rupees.

The company approached its lenders in November for debt restructuring, which “should be through in 2-3 months,” Agarwal said.

As per current negotiations between Vishal and TPG, the private equity firm will set up a wholesale company, while some other Indian investors will form a retail company, he said, without identifying the Indian investors.

The assets and liabilities of Vishal will be transferred to the wholesale company on a slump sale basis, he said, adding that Vishal Retail will cease to exist after the deal.

Vishal’s stores and other assets, which will be owned by the TPG-founded wholesale company, will be leased to the retail company set up by the Indian investors, which will run the operation, he added.

India doesn’t allow foreign direct investment in multi-brand retail, such as Vishal. Foreign direct investment of up to 51 percent is allowed in single-brand retail and up to 100 percent in wholesale business.

Besides the TPG option, Vishal is also considering raising funds through stake sale to Indian investors. Agarwal said the company was in talks with some Indian investors, but talks were ‘not serious’ yet.

A court ruling last month, which came in response to a petition by Singapore’s lender DBS Bank, bars Vishal from selling assets till November.

“There will be no sale of assets till the order is vacated,” Agarwal said, adding that the transfer of assets may get delayed if a deal were to be struck in three months.

Agarwal said there was no clarity yet on whether current shareholders of Vishal will get shares in the wholesale company or cash in lieu of their holdings.

“Negotiations are still on. There is no clarity on this now,” he said.

However, he did confirm that he would hold no stake in the new entities. “I will be out (of Vishal Retail).” He holds about 57 percent stake in Vishal at present.

Vishal retail, which reported a loss of 4.14 billion rupees in 2009/10, expects to report an operational profit in the April-June quarter as well as for entire year ending March 2011 on higher sales and cost reductions, Agarwal said.

The company’s losses last year were mainly on account of inventory write-off. “No further major inventory write-off (is required),” Agarwal said

The company forecast a sales of 3.50-3.75 billion rupees for Apr-June quarter and 15-18 billion rupees for 2010-11. The company reported a sales of 11 billion rupees last fiscal.


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Vishal Retail Sees A Possibility of Deal With TPG

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