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Biyani sweetens deal for Vishal Retail

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Arijit Barman Mumbai
Last Updated : Jan 20 2013 | 1:04 AM IST

The entry of Future Group’s Kishore Biyani in the race to take over the assets of cash-strapped Vishal Retail Ltd (VRL) has queered the pitch for buyout private equity fund Texas Pacific Group (TPG), with whom the debtors had earlier signed a non-exclusive agreement.

Biyani’s proven record, his offer to retain the Vishal brand, and issue redeemable preference shares worth Rs 176 crore has found favour with both the key banks and VRL’s current promoter. TPG had suggested a 0.5 per cent Compulsorily Convertible Debenture (CCD) option for the same amount, which if converted by the lenders would have translated into a 6.68 per cent stake.

“Any convertible structure may not be favourable for lenders.You never know what price the actual conversion will take place. Whereas, the redeemable preference shares means you are getting cash for cash,” explained a banker whose organisation has significant exposure in VRL,

Biyani, like TPG, has also sought a three-year moratorium on the debt repayment and is negotiating a new rate, said to be even lower than the already revised one of 7.5 per cent.
 

FUTURE GROUPTPG
No split of business, to retain Vishal brand Split operations into wholesale co and retail company (FDI compliance)
Future Value Retail to manage integrated operationsTPG along with a domestic investor to manage biz (TPG-Shriram Group likely combo)
Reedemable pref shares to lenders worth Rs 176 crorePart of debt (Rs 176 crore) to be converted into 0.05% CCDs to CDR lenders. Conversion at Rs 108/share by 2015 for 6.68% equity
Lenders don't need to infuse fresh capitalLenders need to infuse addl Rs 100 cr term loan, Rs 150 cr working cap in phases

Why the interest
“All this intensified in the past 10-15 days. Once the corporate debt restructuring (CDR) cell approved the restructuring package of Rs 750 crore of Vishal’s debt, overnight the company became an interesting asset for any strategic retailer. It’s easier to buy than build. By spending half the amount, one gets access to Vishal’s Rs 1,100-crore turnover,” said a banker involved in the talks.

Biyani, according to sources, also offered to pick up the liability of Rs 500 crore which is the secured debt of VRL. VRL and its promoters have to take responsibility of Rs 250 crore of unsecured debt but Biyani may provide more assistance. Future Group will retain Rs 175 crore as debt on its books instead of converting it into equity, while another Rs 256 crore of debt would be transferred into the books of Future Group subsidiaries.

TPG did not want to take any responsibility for the unsecured debt and it was the sole responsibility of VRL’s promoters to pay these off. TPG, however, was investing Rs 200 crore upfront in the wholesale arm of the company and Rs 300 crore as an additional investment, subsequently.

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There are two basic differences between what TPG offered and what Kishore Biyani suggested. First, unlike TPG, Biyani will not have any regulatory risks and his investments will not require any approvals. “Second, the lenders will be more comfortable backing an investor who has a proven track record and is a retailer himself… He is the face of Indian retail,” said a senior lender of VRL. “Add to that, R C Aggarwal (Vishal’s chief) knows him personally.”

Biyani’s last-minute entry has meant TPG’s restructuring strategy, which included roping in another domestic investor for Vishal’s front-end retail arm, is being compared with his alternative blueprint.

Business Standard had earlier this month reported that TPG was in dialogue with the Chennai-based Shriram Group for investing in Vishal’s front-end retail division

According to sources, Biyani has also given a non-binding expression of interest which is now being reviewed by R C Aggarwal and the lender consortium led by State Bank of India. Other than SBI, HDFC and HSBC are some of Vishal’s big lenders. A lenders meeting is due this week to take the matter forward.

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First Published: Jul 28 2010 | 1:44 AM IST

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