Indian Retailer

Promoters have got a go ahead from shareholders to pump in Rs 293 Cr through equity and convertible warrants.

Promoters of India’s largest retail firm Pantaloon Retail India have got a go ahead from shareholders to pump in Rs 293 crore ($60 million) into the company. The transaction involving sale of equity and convertible warrants will also help Kishore Biyani and family to raise holding in the company upto 53%.

At present promoters hold 46% in Pantaloon of which around 16% is pledged. As per the transaction they will be issued 11 million equity shares at Rs 183 a share, raising Rs 201.3 crore and a further 5 million warrants at Rs 183 each, to raise Rs 91.5 crore. The promoter holding will increase to 51% through the equity issue and if warrants are converted into equity it would go up further to 53%.

BCCL TO AVERAGE OUT

In addition private equity investor Bennett Coleman & Co Ltd (media firm which invests through ad for equity deals) will be issued 4.1 million shares at the same price to raise Rs 75.03 crore. BCCL is an existing investor and the allotment would help it bring down the original cost of investment.

As per VCCircle calculations BCCL’s average cost of acquisition of Pantaloon shares is pegged at Rs 264. This is excluding the bonus Class B shares that it received few months back for free (and partly sold in March 2009 for Rs 6.2 crore). It currently holds 5.9 million common shares of Pantaloon which will become 10 million shares after the new allotment. Its cost of purchasing the shares would come down from Rs 264/share to around Rs 230/share. Pantaloon scrip was at Rs 225 at BSE in early morning trade.

In the meanwhile, it appears BCCL had sold some shares of Pantaloon at a loss in the previous two quarters. Its holding came down by around 1 million shares between October-December 2008 when the shares traded between Rs 200-275 and further came down by 1.7 million shares in the January-March quarter when the price ranged Rs 100-250. This means BCCL indeed made a loss

over its actual investment cost. It would have partly made up for this loss by the sale of class B shares in March 2009.

Pantaloon is one of the biggest investment (besides Videocon — another notional loss making investment--) for BCCL which strikes ad for equity deals through its private treaty group. The media group is estimated to have put in as much as Rs 230 crore till date and with the new transaction its investment would cross Rs 300 crore in Pantaloon.

The current value of its investment is Rs 135 crore (including Rs 2.25 odd crore through ownership of class B shares). The cost of purchasing the shares is estimated at Rs 155 crore.

PANTALOON RESTRUCTURING

Last month Pantaloon received permission for restructuring, involving the transfer of the ownership of retail and fashion divisions. According to this Pantaloon Retail (India) Ltd will now be renamed Future Markets and Consumer Group, a new holding company for businesses such as financial services, insurance, logistics, knowledge services and media. It will have a wholly owned subsidiary, called Future Fashion Merchandising Ltd. This was viewed by analysts to get private equity investment at the subsidiary level.

The fund-raising is also aimed at bringing the down the debt to equity ratio, which has been steadily rising. The ratio has gone up from 1.17:1 in fiscal year 2007 to 1.21:1 in FY 2008 and is expected to be around 1.4:1 in the current financial year which ends on June 30 (the company follows the June reporting cycle).

According to managing director Kishore Biyani, the restructuring will create three distinct business segments of fashion, retailing, and FMCG and consumer durables.