India’s Future Group has sold its majority stake in Future Capital, a non-banking financial company, to US private equity firm Warburg Pincus for Rs5.6 billion ($100 million).
Warburg will pay Rs162 a share for a 53.7% stake in the business. The price values Future Capital at $187 million and represents an 18.3% premium to the company’s closing price on Friday — and 18.6% over the 30-day average price.
As a result of the deal, Warburg will make an open offer to the existing shareholders of Future Capital and has reached an agreement to infuse Rs1 billion of primary capital through a preferential allotment in the business.
The sale is part of a plan to pay down debt. Future Group, which is controlled by Indian entrepreneur Kishore Biyani, is selling non-core assets owned by its subsidiary Pantaloon Retail, a firm that operates some of India’s leading retail chains.
“This transaction is ... aimed at deleveraging and further strengthening the balance sheet of [Pantaloon Retail],” said Biyani in a statement announcing the deal. “We are pleased to have Warburg Pincus as the majority partners in Future Capital Holdings and are sure that they will have the support of all the existing shareholders and the management team in helping the company build and grow its financial services platform.”
Future Capital focuses largely on providing loans to small and medium-size enterprises, as well as consumer loans, senior secured wholesale loans, wealth management and broking services. As of March 31, 2012, the company had a loan book of Rs47 billion and has a network of 197 branches in 41 cities.
V Vaidyanathan, managing director of Future Capital, will continue to head the company and will assume the role of chairman. Warburg’s Vishal Mahadevia will take a seat on the board of directors.
The deal was announced in the afternoon in India but was widely expected by the market. Shares in the company closed at around Rs144 yesterday, up almost 5% during the day as investors responded positively to reports that a deal was imminent.
The stock has risen 16% so far this year, compared to a 5% fall on the benchmark Sensex index.
Warburg has invested roughly $3 billion in India since 1994, including stakes in leading businesses such as Bharti Airtel, HDFC and Kotak Mahindra Bank.
Morgan Stanley advised Pantaloon while Enam Securities advised Future Group.