Cash-strapped Vishal Retail may soon become a shell company if the restructuring package proposed by lenders is implemented. Texas Pacific Group (TPG), which has agreed to infuse Rs 500 crore, has put in a condition that Vishal Retail (VRL) will transfer all its fixed assets to a special purpose vehicle (SPV) that will be predominantly owned by the foreign private equity firm.
Delhi-based Vishal Retail, which faced financial problems over the past one-and-a-half year, approached lenders to restructure loans of Rs 740 crore. Under the agreement, TPG will bring in Rs 200 crore upfront and another Rs 300 crore to revive operations by 2014.
Once the assets are parked in the SPV, TPG will run the business under a wholesale cash-and-carry entity because present regulations do not allow foreign direct investment in multi-brand retail companies. TPG will hold an 82% stake in the proposed SPV while the balance equity will be held by lenders such as State Bank of India, HDFC, Bank of India, HSBC, among others.
The debt restructuring plan, a copy of which is available with ET, clearly states that all fixed assets of VRL will be transferred to the wholesale company. Responding to ET, Ram Chandra Agarwal, CMD of VRL, said: “Due to confidentiality, we will not comment on the structure of the deal… Many investors are approaching us as they believe that there is a lot of value in the company and its business.
Recently, we have signed an MoU with TPG, which is non-exclusive and non-binding in nature. We have many other options at the moment and will act in the best interest of the company and our stakeholders.” Mr Agarwal holds a 57.3% stake in VRL.
Of the total dues, Rs 252.64 crore will be converted as new loan facility to the wholesale company and another Rs 146 crore and its interest of Rs 29 crore will be converted in compulsorily convertible debentures (CCD).
TPG has also proposed that the wholesale company will come out with an IPO by 2015 and the CCD holders will have to convert their bonds in equity anytime before the IPO. The bonds will be converted at Rs 108 a share.
Further, Vishal Retail is expected to realise Rs 75 crore by selling Vishal Water Park, a group company, and properties located in Dehradun, Hubli, Kolkata and Jabalpur. The money will be used to repay secured lenders.
As per the agreement with lenders, TPG has proposed a ‘tag along rights’ of lenders wherein the creditors will have the right and the obligation to sell its stake (which will be on account of conversion of bonds in equity) to the same entity that TPG decides to sell its stake.
“Existing VRL shareholders will get very little from this deal. They will stand behind debt holders. If any money is left after debt holders (secured and unsecured) are paid, it goes to equity holders. Unsecured lenders are behind secured lenders but ahead of equity holders. They are likely out of luck though,” Anand Raghuraman, partner and director at Boston Consulting Group.
Have you read?:
- Texas Pacific Group likely to buy Vishal Retail, convert it to Cash & Carry
- Vishal Retail For Out-Of-The-Court Settlement With Lenders
- Yet to finalise details of agreement with TPG: Vishal Retail
- Lenders appeal on Vishal Retail asset sale
- Vishal Retail to commence debt restructuring process soon
- Vishal Retail to carry out slump sale of assets, liabilities to new cos
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