In an interesting turn of events at Lilliput Kidswear, the warring shareholders — private equity investors Bain Capital and TPG — and promoter Sanjeev Narula have agreed to come together and raise additional capital for the cash-strapped retailer.
Sources privy to the ongoing negotiations said all the shareholders had agreed to a Rs 500 crore equity infusion for day-to-day functioning. Investment bankers Avendus and Grant Thorton have also been brought in to assist in the fund-raising process.
When contacted, Bain and TPG did not want to comment on the issue. Sanjeev Narula could not be contacted on his mobile phone despite several attempts.
Since the proposed IPO of the company is in limbo, the additional equity will provide the much needed cash to support the company’s aggressive expansion that has taken place in the past one year. The company’s debt, sources say, has ballooned to more than Rs 500 crore and an equity infusion is critical to pay back dues and manage other operating expenses.
The ongoing legal tussle has also made it difficult to tap bank financing. In the past year, Lilliput has added close to 100 stores covering 600,000 square feet of space and has redesigned its business models to go for bigger stores.
Sources also see this move as a precursor to the existing PE investors preparing the ground for an exit. The two marquee investors had together invested $86 million for a 45 per cent stake in Lilliput Kidswear in April last year. Narula owns the remaining 55 per cent.
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But since September this year, matters have turned ugly between the two shareholder groups, who were headed for a legal confrontation at the Delhi High Court. While the PE investors have accused Narula of fudging the company's books and not providing access to its financials to auditors, Narula has in turn accused the investors of trying to stall the company's Rs 850 crore initial public offering and seize majority control.
The fund-raising likely from other PE investors will run parallel to the new independent audit of the company that the Delhi High Court has asked for. Early last month, S S Kothari Mehta & Company was appointed by the court for this to probe the company's books and review the earlier audit carried out by SR Batliboi.
The court has allowed the two PE investors to give points of reference to assist the new auditor. But earlier, in an interim order, the court had also restrained the private equity players from selling their shares in the company without first offering them to Narula.
SR Batliboi resigned as an external auditor after Lilliput’s board disapproved the company's financial statements by a majority vote in a meeting held on September 28 as questions were being raised on the authenticity of the company's books of accounts. The board had also passed a resolution seeking the appointment of Deloitte to investigate the accounts as an independent third party. Following the auditor's resignation, the two nominees of the PE investors —Matthew Levin and Scott Gilbertson — and four independent directors also quit.
Drawing parallels with the restructuring of Vishal Retail, where an independent auditor was also brought in and subsequently the accounts were restated before TPG and Shriram Group negotiated with the CDR lenders to buy out the company, here too, sources said, the two process would run independently.
“The fund-raising will only gather momentum once the forensic audit by SS Kothari gets submitted. The audit has begun but any new investor will doubly check the financials before putting in money as the legal dispute in the company is quite public. The existing investors, too, will weigh their options and take a final call after the audit comes in,” said a person following the development.