Troubled investments have claimed the second big victim in the Indian private equity space. On the heels of Lilliput, where marquee names like TPG and Bain Capital are stuck in a messy legal battle, Morgan Stanley Private Equity is staring at a Rs 200 crore loss.
Its first and only investment in India out of its Asia-dedicated fund has gone bad. Biotor Industries, a Mumbai-based biofuel company, in which Morgan Stanley had picked a significant minority (over 30 per cent) stake in 2008, has ceased operations, according to two officials familiar with the development.
The investment was made out of the $1.5 billion dedicated fund for Asia, raised by Morgan Stanley Private Equity in 2007.
“The company has debt of around Rs 1,100 crore. Lenders have moved court and the promoters are in trouble,” said one of the officials closely associated with the deal.
Even during the sub-prime crisis in 2007-08, a couple of big ticket deals such as Subhiksha and Vishal Retail ran into trouble. Four years on, life has come a full circle as PEs are facing the threat of increasing lemons in their baskets as they fight a double whammy of poor global demand and high interest rates. Indian banks are also facing a doubling of non-performing assets, according to credit rating agencies.
Biotor has been having issues for almost a year and has gone into corporate debt restructuring. Earlier, when the company failed to achieve milestones in accordance with the share purchase agreement, the PE fund had raised its stake to 45 per cent. “The fund had invested about Rs 182 crore initially through compulsorily convertible preference shares. After the stake increase, the total exposure is around Rs 200 crore,” the second official said.
According to the official, the fund can raise its stake by another 20 per cent. It may take a controlling stake, but it does not see any way of turning the company around.
SBI Capital Markets, the lead banker for the deal, said it was no longer involved with the company. “We had a relationship initially. But after the company went into CDR (corporate debt restructuring), we have discontinued it. We don’t deal with them any more,” said S Vishvanathan, MD & CEO, SBI Capital Markets.
An email sent to Aluri Srinivasa Rao, managing director, Morgan Stanley Private Equity-India, did not elicit any response.
Rajesh Kapadia, managing director, Biotor Industries, did not take calls. An official at his office said Kapadia was out of town. Mumbai-based Biotor is engaged in the manufacturing of castor oil-based products and derivatives used in various sectors such as agriculture, cosmetics, electronics, telecom, food, lubricants, paper, ink, paints, plastic, etc.
Morgan Stanley PE has four other investments in India through its global fund, according to data from VC Edge. In 2007, it acquired 4.03 per cent in Core Education & Technologies and three per cent in NSE India. Anant Raj Industries, a real estate development company, and Tower Vision India are the other investments.