Lenders may oppose sale of Vishal over transaction value

Lenders to Vishal Retail are expected to object to the beleaguered retailer’s decision to sell its retail and wholesale cash-and-carry ventures to the Shriram Group and Texas Pacific Group for Rs 100 crore.

A banker familiar with the development said Vishal Retail did not mention the transaction value when the debt restructuring plan was being worked out. As part of the debt recast, the lenders will take a hit of Rs 280 crore on a combined exposure of Rs 750 crore to the R C Agarwal-promoted entity.

In a statement to stock exchanges this morning, Vishal said the company would be split into two, with Shriram Group acquiring the retail venture and TPG buying the wholesale cash-and-carry unit as part of the agreed debt-recast formula.

The company has assets of around Rs 200 crore and market capitalisation of Rs 114 crore at the close of trading on Friday. Following the statement announcing board approval for the sale, Vishal’s share price shot up 15 per cent to an intra-day high of Rs 58.80 on the Bombay Stock Exchange. The shares closed 6.16 per cent higher at Rs 54.25 on the BSE, with market capitalisation estimated at Rs 122 crore. The BSE Sensex closed 2.17 per cent higher today.

The residual liability of Rs 75 crore is to be liquidated by lenders through sale of third-party collateral of Vishal Retail, the banker said. Of the total bank exposure, a significant amount would be written off. “Restructuring has cost the lenders a significant sum,” said a bank executive involved in the transaction.

A questionnaire e-mailed to Agarwal remained unanswered, while a spokesperson said company executives could not speak to the media due to a confidentiality clause in the agreement.

TPG has invested close to Rs 1,000 crore in two different Shriram Group entities: Shriram Transport Finance and Shriram City Union. TPG could not have acquired a stake in Vishal due to a government ban on foreign investment in retail trading. In the case of wholesale trading, foreign investors can set up wholly-owned Indian subsidiaries.
 

QUICK FIX

Who are the buyers?

* Shriram Group and Texas Pacific Group for Rs 100 cr

What is the plan?

* Sell retail to Shriram, cash-and-carry to TPG

How will banks hurt?

* Lenders to take Rs 280-cr hit on exposure of Rs 750 cr

Vishal was a start-up venture trying to garner a share of the consumer wallet. Unlike several retail chains that folded up following the financial crisis, Vishal, along with Subhiksha, was referred to the corporate debt restructuring cell. While no progress has been seen in the case of Subhiksha, Vishal has managed to extricate itself from the problem, at least for the moment.

Vishal’s losses more than quadrupled to Rs 415 crore for the year ended March 31, from Rs 94.5 crore a year earlier.

The company’s statement said its four manufacturing facilities are outside the ambit of the transaction. While the company’s board cleared the transaction, it sought shareholder consent for the proposed sale.

The investment would put the US private equity firm, which has $47 billion in assets, in competition with the likes of Wal-Mart, which runs two wholesale cash-and-carry stores in India.