Mar 21, 2013, 08.33 AM | Source: CNBC-TV18

IPP proceeds to fund acquisition, capex: Thomas Cook

Thomas Cook India has got Securities and Exchange Board of India’s (Sebi) approval for issuing nearly 3.5 crore shares or a 14 percent stake through the institutional placement route.

Thomas Cook India has got Securities and Exchange Board of India’s (Sebi) approval for issuing nearly 3.5 crore shares or a 14 percent stake through the institutional placement route.

The main purpose for raising the funds through institutional placement instead of going in for an offer for sale (OFS) was that they could issue fresh shares and also bring in fresh equity into the company. It would diversify the company's shareholders and bring in some more quality institutional shareholders as a part of our shareholding said Madhavan Menon, MD, Thomas Cook India.

Part of the funds raised would be used for acquisition of Ikya Human Solutions, a services sector compnay and the funds will also be used for capital expenditure, Menon said.

To fund the Ikya acquisition they will not use any debt because as per regulations they need to use internal accruals or fresh equity to fund it he clarified

Below is the verbatim transcript of his interview on CNBC-TV18

Q: Will this be Fairbridge just divesting its shares or will you all issue new shares so that their holding comes down in which case the company will have a little bit of money?

A: It is a sum of everything. The reason we are going for the institutional placement programme (IPP) is that Fairbridge Capital who represents Fairfax Financial Holdings has to divest its 87 percent position down to 75 percent in accordance with Sebi regulations.

Offer for sale (OFS) was one option that we had but we were keen that by going through the IPP route we could in effect achieve a couple of things. One is issue fresh shares and bring-in fresh equity into the company. Secondly it would diversify our shareholders and bring in some more quality institutional share holders as a part of our shareholding. This we saw as the best opportunity to go forward.

Q: Are you issuing some new shares or is it all a sale of Fairfax shares?

A: It will be an issuance of new shares, which will dilute Fairbridge’s holdings in the company from 87 to 75 percent.

Q: For these new shares issue have you spoken to a few investors who have evinced interest in Thomas Cook?

A: We have received a fair amount of interest in this issue and we are currently just waiting because there is just too much activity starting with yesterday’s monetary policy, the political happenings etc. So over the next couple of weeks we hope to complete this process but we have received a fair amount of interest.

Q: You will be making around Rs 185 crore at today’s prices if you sold these shares or at least a Rs 180 crore. What do you do with the money?

A: We did announce the acquisition of Ikya a couple of weeks ago, so we will use a part of this money to fund that acquisition. At the same time we have other plans in terms of capital expenditure. A variety of other things that we want to undertake ourselves at Thomas Cook, to facilitate growth and that is the objective.

Q: How much will be used to repay your Ikya acquisition and debt?

A: We are not going to use any debt to acquire. As per the regulations we need to use internal accruals or fresh equity to fund the Ikya acquisition. So we are not actually using any debt to do that.

However, we are looking at a swap in debt primarily from the point of view that most of our debt is short-term commercial paper and we are now looking at swapping a part of that for four-six years non-convertible debentures (NCDs) which will actually broaden our maturity spectrum.

Q: So what is the rate on these NCDs and what will the maturity period be?

A: We were waiting for yesterday to happen, so we will now go out and do that activity. Maturity will be equal payments in the fourth, fifth and sixth year.

Q: At Thomas Cook how are the percentage revenues split up between the different segments and in what fashion? How much does forex bring? How much will Ikya bring and do you have any of your travel products also bringing you money?

A: We are in a quiet zone as far as the acquisition goes so I cannot reveal Ikya’s numbers. But to reiterate, pre-Ikya we will be 55 percent foreign exchange and 45 percent travel at a revenue level. At the year end this will change because of the Ikya acquisition. It will not change dramatically in the first year but Ikya’s contribution given the growth that they have projected will increase as we go forward.

Thomas Cook stock price

On November 30, 2015, Thomas Cook (India) closed at Rs 207.20, up Rs 2.60, or 1.27 percent. The 52-week high of the share was Rs 256.90 and the 52-week low was Rs 150.20.

The company's trailing 12-month (TTM) EPS was at Rs 0.75 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 276.27. The latest book value of the company is Rs 31.43 per share. At current value, the price-to-book value of the company is 6.59.

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