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Lone Star-Rattan settlement talks over NBFC JV deadlocked

The US PE fund and Rajiv Rattan have negotiated a price for the former’s exit from RattanIndia Finance, but talks stuck on Lone Star withdrawing legal case against Rattan.

September 28, 2021 / 01:57 PM IST
Representative Image (Shutterstock)

Representative Image (Shutterstock)

Out-of-court settlement talks between Rajiv Rattan and Lone Star Funds have reached a deadlock despite both agreeing in principle to part ways, with the former agreeing to acquire Lone Star’s entire stake for $65 million in RattanIndia Finance, two persons with knowledge of the matter said.

RattanIndia Finance, a 50:50 joint venture between Rajiv Rattan and Lone Star, hit the headlines mid-May when the US-based private equity (PE) fund alleged that its partner had siphoned off funds and sought approval from the National Company Law Tribunal (NCLT) to conduct a forensic audit aimed at investigating alleged fraud in the non-banking finance company (NBFC).

Rajiv Rattan, who co-founded Indiabulls Group in 2000, has denied the allegations of fraud. He did not respond to requests for comments while Lone Star has denied talks of settlement.

A lingering dispute

At the heart of the dispute is Rajiv Rattan’s contention that Lone Star should not pursue a legal case against him given that both parties had agreed on a settlement amount in July this year, the persons cited above said on condition of anonymity.

Close

Lone Star has indicated that it would continue to seek legal remedy until an agreement between them is signed and executed, the persons added.

As of now, both parties have agreed in principle on a settlement amount; a formal agreement is yet to be signed, the persons said.

Yet another issue of contention is top-level appointments. The company has not yet appointed a new Chief Executive Officer (CEO) and a Chief Financial Officer (CFO) despite directions by the NCLT in June to appoint a new CEO within two weeks and CFO within eight weeks. Rajiv Rattan continues as Chairman and CEO of RattanIndia Finance, according to the company website.

Lone Star had suggested appointing executives backed by consulting firm Alvarez & Marsal for both posts, the persons said. This suggestion was rejected by Rajiv Rattan, one of the persons said.

Rajiv Rattan has conveyed to Lone Star that since it is exiting the joint venture, the matters relating to the appointment of executives should be his prerogative, the same person said.

In an emailed response, Lone Star said, “LSF10 Rose Investments S.a.r.l., an affiliate of Lone Star Funds, remains committed to pursuing, in the appropriate legal forum, the prevention of the wrongful taking of the company’s funds and the prevention of further erosion of the company’s assets and resources. Rumours of a settlement related to these matters are unfounded.”

What’s at stake?

Lone Star, through its Lone Star Fund X, had invested $100 million for a 50 percent stake in RattanIndia Finance in March 2018. The balance is held by Rajiv Rattan and his family. The shareholder agreement allows either of the partners to exit the JV by selling its stake to the other partner at a mutually agreed price.

Differences between the two partners began sometime in 2020, but by the first quarter of 2021, they decided to part ways, said one of the two persons cited earlier.

Initially, Rajiv Rattan offered $40 million and later improved it to $60 million to acquire Lone Star’s 50 percent stake, but the US-based private equity fund demanded $70 million, the same person said. By early July both partners agreed to settle the dispute for $65 million the person said.

The two parties have not come to the negotiating table for over eight weeks now due to differences over the need to pursue legal remedies and later over the appointment of executives.

“There is an element of trust deficit on both sides that has resulted in this logjam,” said the second person.

Soon after agreeing to the $65 million offer, Lone Star announced plans to lay off majority of its Asia staff as part of its global business consolidation strategy. This prompted the Rajiv Rattan camp to claim that Lone Star made false allegations when it wanted any way to exit India, the first person said.

What’s next?

Due to the growing differences between the two partners, RattanIndia Finance almost discontinued the lending business while collection and recoveries continued at their normal pace. This resulted in a sharp rise in the cash balance of the finance company. At the end of August, the finance company had a cash balance of Rs 730 crore compared to Rs 230 crore on March 31, 2020.

Both the disgruntled partners have high-profile legal counsel. Abhishek Manu Singhvi is legal counsel for Rajiv Rattan and Kapil Sibal is legal counsel for Lone Star, both the persons cited above said.

The Delhi NCLT on September 17 deferred the hearing on Lone Star’s plea to conduct a forensic audit to October 4 due to lack of time to hear their arguments.

At a hearing on September 7, the NCLT directed both the parties to settle the dispute out of court, said the first person.

RattanIndia Finance, known as Vikhyat Fin Lease and Trading before the tie-up with Lone Star, is primarily engaged in wholesale lending and it started its retail lending business in mid-2018.
Sangita Mehta
first published: Sep 28, 2021 12:23 pm

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