Investigation: Subhiksha supermarkets on the block?

By M H Ahssan

CASH-STRAPPED: The retail chain needs Rs 300 crore immediately to stay afloat .

Is Subhiksha on sale? It is believed that a chunk of equity from the Chennai-based, cashstrapped retail chain —which is in immediate need of Rs 300 crore —is on the table and the search is on for either a strategic buyer or a financial investor. It recently qualified as an eligible candidate for corporate debt restructuring (CDR). HNN has learnt from various industry sources that feelers have been sent to almost all large players operating in the various retail formats for a possible buy-out of Subhiksha. HNN has also learnt that companies like Aditya Birla Retail, Reliance Retail and the Future group, among others, are likely to have been approached at different times.

Industry sources also told HNN that investment bankers have been making the rounds of various companies in Mumbai and trying to hawk a substantial equity stake in Subhiksha. However, it is not known who appointed these bankers — the promoters, other existing investors, lenders or whether they are fishing for a mandate independently.

But, the deal does not look like it’ll get closed in a hurry. The reason is finding genuine interested buyers in the current economic slowdown might not be that easy. Also, prospective buyers will have to contend with a couple of issues. One, there are liabilities involved and buyers would want a clear idea of the burden that awaits them. Also, Subhiksha’s model of deep discount retailing is unique and the bidder has to figure out if it dovetails with his existing operations. Then, of course, is the issue of whether the acquirer would want to invest partially or is interested in a complete buyout.

In reply to a questionnaire, R Subramanian, managing director, Subhiksha, told HNN: “On equity, the approach is to take a look at this post the CDR approval. The first right of refusal would be with existing investors. Of course, if there is a spillover, it can go to a new investor.’’ The founder said that since Subhiksha is working on the CDR package with existing lenders, the company does not see the the current debt drought affecting their package. Subramanian also expects that the loans would be coming out of existing banks. CDR is a process for reviving cash and debt strapped viable units. “The prism through which such proposals are viewed would be different from normal new debt proposals,’’ he added.

When asked whether he was open to the idea of a new investor who could end up owning a substantial stake in Subhiksha, he said: “The most important thing for us is the company. We need the company to survive and thrive. Issues of relative ownership, etc. are immaterial. We are not so bad that personal ego is ahead of the business need. One does see it (investor) as necessary, but if ever necessary, our personal interest will never be put ahead of this.’’ Although there is confusion over the mandate to merchant bankers, sources indicated that the lenders themselves could have appointed these bankers. Subramanian maintained that nobody was mandated for revamp or finding a white knight.

Sources said that whatever be the changed structure, Subramanian would continue at the helm of Subhiksha. “After all, he knows the business model like the back of his palm. The likely interest could come in from some hedge fund which will invest only for financial gains, while leaving the operations to the current team,’’ said an investment banker who worked closely with Subramanian in the past.

ICICI in a fix over Subhiksha exposure
Discount retailer Subhiksha’s cash-starved situation has put ICICI Prudential, the second largest fund house in terms of assets under management, in a tight spot. The fund house has a Rs 75-crore exposure to the Chennai-based company. According to the fund house’s latest fact sheet, its two close-ended diversified equity schemes ICICI Prudential Fusion Fund and ICICI Prudential Fusion Fund-Series II— have invested around Rs 75 crore in the retail company.

The schemes have an exposure of 8.54% and 9.61% respectively of their corpus in the unlisted firm. The asset management firm invested Rs 75 crore in June 2007 by buying part of ICICI Venture’s stake in Subhiksha. The retailer was valued at Rs 1,500 crore at that time.

When contacted, ICICI Prudential said that it doesn’t comment on stock specific events. However, sources close to HNN added that ICICI Prudential, ICICI Ventures (holds 23% stake) and Azim Premji Investments (10%) and various foreign and Indian lenders are believed to be working together to find a solution. The options include roping in strategic or financial investors. Another option is to let lenders take control over the company.