IDFC Private Equity Co. Ltd, the private equity (PE) arm of Infrastructure Development Finance Co. Ltd (IDFC), will swap its minority stake in SE Forge Ltd for shares in its listed parent company Suzlon Energy Ltd, the largest wind turbine maker in India.
On Monday, Suzlon informed the Bombay Stock Exchange that its board will meet to consider an issue of 31.99 million equity shares of '2 each to IDFC Private Equity Fund III (IDFC PE) by way of preferential allotment.
After the stock swap, SE Forge will become a wholly owned subsidiary of Suzlon.
“This will give us an opportunity to take a broader exposure in multiple components through a stake in Suzlon,” said S.G. Shyam Sundar, managing director, IDFC PE. “It's a methodology through which we can look at liquidity.”
In September 2008, IDFC PE picked up a 17% stake for '400 crore in SE Forge. Since then, the worth of the stake has declined to '187.15 crore, based on Suzlon's closing price of '58.50 on Monday.
Sundar declined to comment on the decline in value, only saying: “We believe there is a long term value proposition in Suzlon and we want to be a part of that.”
He declined to say if IDFC PE will invest more in Suzlon.
A spokesman for Suzlon said the firm's plans for SE Forge remain intact. “It's up and running and is a supplier to not just Suzlon but other companies as well.”
He declined to comment on plans for SE Forge or Suzlon.
“Exit is a time-bound agreement: sometimes you win some and sometimes you lose,” said a fund manager who did not want to be identified as he was commenting on a rival fund. “IDFC had always planned an exit through consolidation, it was just a matter of time.”
Bhavesh Shah, executive director at JM Financial Consultants Pvt. Ltd, said: “Such an event enables or prepares ground for the investors for their eventual exit in the market. These types of transactions sometimes may make corporate finance sense over a listing of the investee company.”
IDFC PE has $1.3 billion ('5,759 crore) under management and is present in critical sectors such as power and ports. It has made 30 investments in India since its creation in 2002.
This is not the first time IDFC PE has done a share swap for one of its investments. In May 2009, IDFC PE swapped its stake in Delhi International Airport Ltd for shares in the listed parent GMR Infrastructure Ltd.
On Monday, Suzlon's shares were up 2.01% while the benchmark Sensex index was up 0.44%. Shares of Suzlon have fallen 36.55% since the beginning of the year, while Sensex has gone up 16.46%.
Suzlon, which reported a loss of '9.1 billion for the three months ended 30 June, is seeking funds to expand its presence in the US and Europe, said a Bloomberg news report.
In May, Suzlon agreed to borrow '106 billion from lenders led by IDBI Bank Ltd and State Bank of India to refinance debt, according to data compiled by Bloomberg.
Source: Trading Markets