US private equity firm buys 30% of India's Nectar
This article was originally published in Scrip
The US private equity firm, New Silk Route Partners (NSR), has invested Rs2.52 billion ($54.9 million) in Nectar Lifesciences of India.
Nectar informed the Bombay Stock Exchange that it had raised Rs910 million through an issue of 26 million shares at Rs34 each to the NSR group firm, NSR Direct PE Mauritius, on a preferential basis. An additional Rs1.61 billion was raised by allotting global depositary receipts (GDRs) to NSR.
With the GDRs and preferential allotment of shares, the total equity transferred to NSR will be 72 million shares, accounting for about 30% of Nectar's paid-up capital.
Nectar expects to finance its generic business expansion plans through the money raised, including through the construction of new manufacturing plants, filing of regulatory approvals, R&D, and other associated expenditure besides alliances and acquisitions.
The company expects the deal to add "tremendous value" as it expands into the formulations markets of the US, Europe and Japan.
deal structure
The deal does not trigger India's takeover code, despite the substantial holding the private equity firm will have in Nectar.
India's takeover regulations suggest that only where GDR holders are entitled to exercise voting rights on the shares underlying GDRs by virtue of clauses in the depositary agreement or otherwise, open offer obligations will be triggered upon crossing the certain threshold limits set in the regulations.
Navroz Mahudawala, associate director, transaction advisory services, Ernst & Young, said that structuring (of deals) was just one of the challenges for a private equity firm when investing in a listed company. "The bigger challenge has been mark-to-market losses. In recent times for larger-sized deals, we have also witnessed increasing comfort from PE players to make open offers," Mr Mahudawala told Scrip.
New Silk Route is also expected to have nominees on Nectar's board and was quoted in The Economic Times as saying that it expected to play an "active role" in Nectar's management to boost growth.
On whether private equity firms were increasingly keen on "proprietary" deals rather than going through investment bankers, which could limit competition and hence impact valuations, Mr Mahudawala believed that such (proprietary) deals were still rare.
"Astute PEs would always prefer a banker involved as the company is then better prepared and timelines for the deal are shorter. Also, most Indian entrepreneurs prefer to gauge deal appetite from four-five funds instead of just doing a one-to-one negotiation with a fund," he noted.