PE majors in race for Future Capital

Four top private equity players — Blackstone, Carlyle, Apax Partners and Texas Pacific Group — are in the race to acquire Pantaloon Retail and Future Group Founder-Chairman Kishore Biyani’s stake in the group’s financial services arm, Future Capital Holdings (FCH).

Sources close to the development said though the final bids are yet to come, these four PE players have shown interest in the non-banking financial company with assets worth Rs 3,000 crore, comprising retail, wholesale and mortgage loans.

Morgan Stanley has got the mandate for the deal. Pantaloon Retail holds 53.69 per cent in the company while Biyani holds 7.37 per cent in his personal capacity. The deal size for this 61.06 per cent is expected to be Rs 800-1,000 crore.

PE firms have got into similar deals in the past. US-based TPG had purchased 20 per cent in Shriram Transport Finance (STFCL) five years ago. The PE firm invested Rs 550-600 crore. Recently, TPG expressed its interest to exit the company. Japan’s Orix Corporation may pick up the stake at Rs 3,000 crore, a five-fold rise in value.

Besides Biyani, Sameer Sain, earlier with Goldman Sachs and founder of the company, holds 7.5 per cent in FCH. V Vaidyanathan, managing director & CEO, holds two million warrants convertible into share of the company in February next year.

Sources said that including Vaidyanathan, the existing management including professionals from Morgan Stanley and Merrill Lynch holds around 10 per cent of the company. This means that a strategic partner, like another bank or financial institution, may not be too interested in the company.

Since the stake sale was reported, shares of FCH have moved 33 per cent (in less than a month) from Rs 139.90 to Rs 186.10, between July 1 and July 29. The company’s stock had fallen 35.6 per cent in one year, before July 1. FCH was listed in February 2008 at the issue price of Rs 765.

The company’s numbers have improved substantially in the last one year. According to its March-end results, the loan book has doubled and non-performing assets are down. The company’s net worth was Rs 750 crore for the financial year ended March 31, 2011. This included both wholesale and mortgage loans. The profit after tax stood at Rs 47.55 crore. Its gross non-performing assets (NPAs) and net NPAs were Rs 7 crore and Rs 4 crore, respectively. However, it reported a decline in consolidated profit after tax to Rs 44.15 crore. This was due to a one-time tax provisioning of Rs 39.7 crore arising out of the merger of the company with its subsidiary, Future Capital Financial Services.