Pantaloon in talks to sell stake in Future Capital

In a bid to pare down the consolidated debt of around Rs 5,000 crore, Kishore Biyani promoted Future Group is in talks with interested parties on majority stake sale in Future Capital. It is in talks with various interested PE players, says Future Capital chairman and managing director V Vaidyanathan.

Future Capital is a provider of financial services across consumer and wholesale businesses. Pantaloon Retail, the flagship company of the Future Group, holds 53.7% stake in Future Capital. The discussion is only for sale of Pantaloon Retail's stake in the Future Capital.

“Kishore Biyani does not have a personal stake in the Future Capital, but certainly he is an interested party in a sense that he has substantial stake in Pantaloon Retail. If it leads to an open offer, I guess a part of the open offer proceedings will have to be taken into account,” Vaidyanathan asserts. However, V Vaidyanathan's personal 7.4% stake in the company is not on the block.

The move is in line with Future Group’s strategy to exit non-core investments.  Earlier this year Pantaloon Retail had formed a high powered 'review committee' with the mandate to consider various options for realignment and divestments.

Future Group’s core retail business has a huge debt of over Rs 5,000 crore. The group wants to reduce its debt. Its first priority is to look at non-core retail businesses. It has a lot of non-core retail businesses. Some of them are prime investments, which are good for exit.

After Future Capital stake sale, the group would also look at opportunities to rope in investors for its various other verticals.

The Group wants to reduce debt. “A lot of the proceeds will come out from sale of its investments in joint ventures; some of them are due for an exit now," Rakesh Biyani, joint managing director of Pantaloon had said, in an interview to CNBC-TV18, on April 3. 

The group aims to either list some of its verticals or get independent strategic partners for those.

Valuations:

Vaidyanathan says, Future Capital is in a good shape in terms of growth, assets, profitability and the quality of the management. “There is interest and there obviously would be an expectation of premium,” he adds.

However, he says, to talk about valuations in a public domain would actually not be appropriate at this stage.

Read on V Vaidyanathan's full interview..

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Below is an edited transcript of V Vaidyanathan's interview with Udayan Mukherjee and Mitali Mukherjee. Also watch the accompanying videos.

Q: First if you could confirm that you are in talks with various parties for a majority stake sale in Future Capital?

A: Yes. Indeed we are in talks with various parties. I can understand the level of interest about the deal because it is a company in which public is substantially interested.

Q: An article goes on to say that L&T Finance, Dewan Housing and Barings are the three people who are in active talks with Future Capital promoters ? Can you confirm that these three are indeed in the fray?

A: I can’t confirm specific names but certainly some of these names mentioned here have to say are pure guess work and have to be called speculative. There was this discussion about Barings and somebody being spotted close to our office and so on. But I would say that that talks are on with specific interested parties particularly in the PE space and that is where probably the interest largely is.

Q: The expectation for long time was that perhaps this deal would come through with CX Partners, a PE fund. Can you confirm whether they are still in the fray? Can you confirm what also it has come down to in terms of interested parties now? What is the short list like?

A: I will not comment on specific names at this stage but certainly I would say that talks are on. There is a lot of interest shown in the company particularly for two reasons. One is of course the promoter wants to sell the stake. Secondly the company is doing well as you can see from the numbers and it is a good platform. There are PE players in talks but to take specific names at this stage would actually be a little ahead of its time.

Q: It will be a complete sale though if it happens from Pantaloon Retail side because it will lead to a mandatory open offer as well?

A: Indeed we are aware of that. Actually it depends on a number of factors. Maybe it is valuation and working out a number of caveats with regards to the deal. So as of now till the options are open we will have to take it at an appropriate stage maybe a bit later.

Q: Just checking what is up for sale – is it Pantaloon Retail’s 54% stake? Does it include Kishore Biyani’s personal 7% stake in Future capital which would take it to 60% plus? Does it include your 7% stake in Future Capital as well?

A: It does not include my stake of 7.4%-7.5%. As far as Kishore Biyani’s stake is concerned, he does not have a personal stake in the company. But certainly he is an interested party in a sense that he has substantial stake in Pantaloon Retail which holds about 54% of this company, 53.7% to be precise. So this discussion is largely about Pantaloon Retail’s stake and if it leads to an open offer, a part of the open offer proceedings will have to be taken into account.

Q: I am sure valuation discussions are at an advance stage. However would you be able to get a substantial premium to market price on that deal to whichever PE player or whichever party you eventually sell to?

A: Like I said before the company is in a very good shape in terms of growth, in terms of assets, in terms of profitability and the quality of the management. So I would say that there is interest and there obviously would be an expectation of premium and so on. But really to talk about valuations at this stage in a public domain would actually not be appropriate at this stage.

 Q: It has been in the pipeline for a long time. Even at the inception of this company there was talk about looking at strategic buyers. By when do you think a final deal could be struck and are valuations the hurdle here or is there something else that is holding things up?

A: When this story first broke out, the promoter initially publically aimed an interest to pare down their holdings. At that time the companies own track record in terms of building up towards the new portfolio that we are building was maybe 3-4 quarters old as with the new management. The company has been in existence for three years but really the track record is probably a year old.

As we speak now there are four more quarters or three more quarters of results that have already come and I think the level of interest now is far higher than what it was maybe 9 months ago. The issue was more about having a track record and I think probably was a stumbling block in an earlier stage. But that is now behind us. There are four quarters of good results.

Q: The rational for the stake sale is just purely because of promoted by a need to exit by the Pantaloon Retail to raise capital? Or is there even a small element of getting in a partner who can add some strategic value to Future Capital going forward?

A: It is really the former actually because Pantaloon Retail has clearly decided that they want to focus on what is core which is really the retail chain. They have actually express interest to pare down debt of the group by selling what they call it as non-core investments. But what maybe non-core for the group is really a good business in its own standing. Therefore, the interest is largely about reducing debt and nothing beyond that. There is really no interest of bringing in a strategic player to add value to this. It is more financial investors that we are looking at.