Regulatory hurdle hits largest PE deal in pvt security sector

FIPB refers Rs 500-crore CX Partners-SIS deal to RBI

Private equity (PE) firm CX Partners’ proposal to invest Rs 500 crore in Security and Intelligence Services (India) Ltd (SIS), a Delhi-based private security firm, for a 20 per cent stake is yet to get government clearance, even after seven months of its announcement.

A decision on the deal, which if goes through will be the largest PE deal in the private security segment, was deferred by the Foreign Investment Promotion Board (FIPB) for four times and has now referred to the Reserve Bank of India (RBI), people aware of the development said.

In August 2012, CX Partners, led by former Citigroup veteran Ajay Relan, announced its decision to acquire a 10 per cent stake each from the SIS promoters and DE Shaw, the existing investor in SIS.

CX was supposed to pay Rs 300 crore for DE Shaw’s stake and Rs 200 crore for promoters’ 10 per cent shares.

According to sources, FIPB, which clears investment proposals, has forwarded CX Partners’ request to RBI in order to scrutinise the terms filed between SIS and DE Shaw.

“There was no concern over the business model of SIS, which is involved in security management. Forty-nine per cent FDI (foreign direct investment) is allowed in the private security business in India, and CX Partners will acquire only 20 per cent, which is far below the threshold,” said a person close to the development, requesting anonymity. RBI is looking into the details of investment and the exit terms between SIS and DE Shaw, he added.

When contacted, Relan has confirmed that the proposal is with RBI. He, however, refused to disclose further details. Rituraj Sinha, chief operating officer of the SIS group, also refused to comment on the matter. SIS, one of the largest security facility providers in the country, has an annual revenue of Rs 2,400 crore. DE Shaw made a Rs 50-crore investment in 2008 to pick up about a 10 per cent stake in the company.

Recently, FIPB had given approval for a similar investment proposal from OCS Group, after deferring it a couple of times. According to the proposal, OCS Group Singapore Pte Ltd will acquire “equity shares of an India company engaged in the business of detective and protective services” for Rs 37 crore. Sources said OCS was acquiring a stake in Mumbai-based Central Investigation and Security Services Ltd.

The DE Shaw group, one of the largest global hedge funds, is scaling down its India operations. The fund, which made investments worth $2 billion (Rs 10,720 crore today), is in the process of exiting all its past investments in India.