TPG, Shriram Group buy Vishal Retail for Rs 70 cr

New Delhi-based Vishal Retail on Monday said it had completed the sale of its retail and wholesale businesses to the Shriram Group and private equity company TPG, respectively, for Rs 70 crore, ending a prolonged process to revive the troubled retailer that started in late 2009.

Vishal sold its wholesale trading, institutional sales, and franchise operations to TPG Wholesale, the Indian arm of US-based TPG. Airplaza Retail Holdings, a company owned by the Chennai-based Shriram Group, will manage the retail stores. Vishal’s shares on Monday gained nearly 20 per cent to close at Rs 37.55 on the Bombay Stock Exchange (BSE).

It said completion of the sale followed the corporate debt restructuring (CDR) package approved by its lenders and an approval by the Delhi High Court. Last year, the court had stayed the asset sale following petitions by a few lenders who were not part of the retailer’s debt recast plan.

The deal has been structured to conform to foreign direct investment (FDI) norms in the retail sector, which prohibits FDI in multi-brand retailing, but allows it in wholesale and cash and carry ventures.

Both transactions were done on a slump sale basis, where business is sold on a lump sum basis without assigning values to assets and liabilities. Though the exact contours of the deal were not known, Shriram Group Chairman Arun Duggal, in a television interview, said: “We have made sure that all the banks have been settled, we have made sure that all other vendors have been settled, their employee liabilities had been taken care of and then, there is going to be working capital in place to start growing the business.”

According to a joint statement by TPG and Shriram group, TPG Wholesale will operate the back-end sourcing, merchandising, logistics and franchise operations, while Airplaza Retail will operate the retail shops alongside other franchisee partners, currently operating Vishal-branded stores.

“TPG Wholesale shall be the franchiser to Airplaza Retail and the existing franchisee partners of the business,” the statement said.

The Vishal Megamart-branded retail operations will comprise of over 150 stores. These stores will be operated by Airplaza and 20 franchise partners, it said. TPG said it will invest Rs 200 crore in its Indian arm to turn it around and for future growth.

In a statement to the BSE, Vishal said barring a few employees, most of the staff at its retail and wholesale businesses had joined the new retail and wholesale companies.

“TPG brings a wealth of experience in managing and operating a multitude of businesses from across the world, including a track record of turning around and transforming a number of portfolio companies,” TPG Capital India Managing Director Puneet Bhatia said.

Retail is not a new sector for TPG, as it has investments in many retail and consumer goods ventures such as Debenhams, Republic, and Bally in Europe; J Crew, PETCO, Nieman Marcus, and Burger King in the US; Myer in Australia, China Grand Auto, Daphne Shoes, and WuMart in China, Lenta in Russia and Lilliput in India.

TPG Wholesale Chief Executive Officer Gunender Kapur said, “Despite the challenges, we are confident of re-building the financial and operational health of the business relatively quickly. Our vision is to offer nothing short of the highest-quality value experience for our customers.”

Duggal said, “We are delighted that the restructured Vishal will be able to continue and grow its operations for the benefit of its customers, employees, suppliers and the communities, where its stores are located. Vishal has a strategic fit for Shriram Group because its stores are located in small cities, which are also our serving areas.”

“Its client base is middle and lower middle class families, the ‘Aam Admi’ that Shriram Group endeavours to serve. This will enable us to further expand our goal of financial inclusion.”

Ernst & Young was the investment adviser to TPG, while Cleary Gottlieb Steen & Hamilton and AZB & Partners were the legal advisers. Shriram Group was advised by Trilegal Partners.

Retail experts say the deal may give an impetus to Vishal’s future growth. “Vishal is a good brand with a strong consumer connect. Because of governance issues and rapid expansion, they got into trouble. Now, the business can start again with a healthier balance sheet, disciplined business oversight and liquidity to fund future growth,” said Hemant Kalbag, partner and vice-president, AT Kearney, a global business consultant. “The question is how much damage has been done to consumer connect.”

Vishal ran into trouble during 2008 when it failed to raise equity amid economic slowdown and rising debt levels crippled the business prospects. The company had Rs 730 crore debt on books as on June 2010. The company’s lenders approached the corporate debt restructuring (CDR) cell in late 2009.

Subsequently, some lenders like SBI, HSBC and ING Vysya approved the debt recast proposal, which included company promoters ceding control to investors. But lenders like Deutsche Bank, Barclays and DBS Bank approached court asking for the liquidation of Vishal Retail.