BackOverseas funds seek to buy $400-500 mn stake in Aditya Birla Retail
L Capital, Temasek Holdings and International Finance are in advanced talks to buy a 30% stake, say sources
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Mumbai: L Capital, Temasek Holdings Pte. Ltd and International Finance Corp. (IFC) are in advanced talks to buy a 30% stake in the retail arm of India’s Aditya Birla Group for $400-500 million, two people with direct knowledge of the matter told Reuters.
Temasek, the Singapore government’s investment arm, and Aditya Birla Group declined to comment.
L Capital, the private equity arm of LVMH Moet Hennessy Louis Vuitton SA, and World Bank unit IFC were not immediately available for comment.
The people said the three private equity funds are looking to buy the stake in Aditya Birla Retail Ltd, which includes apparel maker Madura Fashion and Lifestyle, department store chain Pantaloons and supermarket chain More.
“The talks are quite advanced and are in the final lap," said one of the three.
Aditya Birla Group will use the funds to expand its retail operations, the three people also said, declining to be named as the talks are still private.
In India, retail businesses such as the Aditya Birla Group—so-called modern or organized retailers—account for just around 8% of a retail market worth an estimated $554 billion, according to a recent report by credit rating firm Crisil Ltd. They have been struggling with losses and debt.
“Indian (retail) companies have been trying to raise funds for the last two years," said Anil Talreja, a partner at Deloitte Haskins and Sells. The reasons for getting investors on board could include the need for capital to fund expansion and to repay debt, Talreja said.
Despite the obvious potential, many modern retailers have found the going tough—largely on account of higher costs not entirely offset by the kind of cost benefits large Western retailers get from suppliers. Indeed, a recent report by market research firm Nielsen said modern retailers expanded their business by 7% in 2013-14, marginally slower than the overall retail market that expanded 8%.
Many of the companies have changed business models and management teams and exited markets in a bid to become profitable.
Aditya Birla Retail has exited Mumbai and Pune. It also put a new leadership team in place in late 2013.
Indian law allows foreign retailers to invest up to 51% in supermarkets, although the policy was drafted in 2012 when the United Progressive Alliance was in power and the new National Democratic Alliance government doesn’t favour this.
Mint reported on 9 September that the government is considering allowing foreign portfolio investors to put money into local retailers.
Investments by foreign private equity and venture capital funds can be routed through the foreign direct investment, foreign institutional investment (or portfolio investment), and foreign venture capital investor routes.
Given the uncertainty surrounding this, and the desire to buy into the India consumption story, several foreign investors have been making large bets on e-commerce companies. India allows foreign investment in online marketplaces, essentially e-commerce sites that provide a platform, payment gateway, and other services to sellers. Mint reported on 18 September that Snapdeal.com could raise at least $600 million in fresh funding. The company has already raised $233.7 million in two rounds of funding this year.
Flipkart said in July that it raised a fresh round of $1 billion. Soon after Flipkart announced the $1 billion fund raising, Amazon.com Inc.’s chief executive Jeff Bezos said the world’s largest online retailer would invest as much as $2 billion in its India business. India’s e-commerce market, excluding travel services and tickets, is worth $3.1 billion and is estimated to grow to $22 billion in five years, according to CLSA’s November 2013 report. Reuters
A Mint staff writer contributed to this story.
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