PremjiInvest says it was misled on Subhiksha

PremjiInvest, the $1 billion private equity fund owned by Azim Premji, the billionaire chairman of Wipro Ltd, is saying it was taken for a ride on Subhiksha, the now-shuttered retailer in which it had invested Rs 230 crore in early 2008.

It has sent a legal notice to the current and erstwhile Board of Directors of the company, asking for an explanation.

Investment banking sources saidthe private equity firm was understood to have said it was misled on the true financial position of Subhiksha, which has prompted it to send notices to the other directors on Subhiksha’s board, including those from ICICI Venture, which sold a part of its stake to Zash Investment, an investment vehicle of PremjiInvest. PremjiInvest officials confirmed the communication but declined to share the details.

PremjiInvest had put in Rs 230 crore for a 10 per cent stake in the Chennai-based retailer, which has run out of cash and is now fighting petitions from lenders for winding it up.

“The Board of Directors cannot walk over minority shareholders like this and they have to be liable,” said an investment banking source who is close to PremjiInvest. Sources further indicated that PremjiInvest has moral support from various vendors of Subhiksha and many erstwhile employees of the latter, whose livelihood has been shattered.

While ICICI Ventures did not want to comment, sources said the directors were in the process of sending an appropriate response to the notice served on them. “Proper due diligence of Subhiksha was done before Zash picked up stake in Subhiksha. The sellers can’t be maligned just because valuations have gone down. Whenever you make an investment, it can move up or down and you should be ready to digest that,” the sources said.

Subhiksha had embarked on an aggressive expansion plan during 2008 and had accumulated a debt of around Rs 600 crore. The economic downturn then choked further infusion of equity, which resulted in Subhiksha tangling itself, thus resulting in delay in salaries to its employees, payments to vendors and then finally grinding to a halt.

Subhiksha is currently going through a corporate debt restructuring exercise involving 13 banks. Twelve of the 13 bank lenders, together with the three major shareholders, are thrashing out the contours of the debt restructuring as well as the funds infusion into the company to revive operations. Kotak Mahindra Bank has taken the legal route and filed a winding-up petition at the Madras High Court against the retail chain. Zash Investment is strongly opposing the winding up of Subhiksha.

Subhiksha MD R Subramanian said between the two investors will not impact the ongoing Corporate Debt Restructuring process.