The crash of KS Oils Ltd underlines the perils of how PE funds can also get it very wrong
Private equity (PE) players, who come with billions of dollars of cash, pick up significant stakes in firms and often work with managements to improve performance and exit at a profit. Their stock picking is supposedly based on excellent research of companies, sectors and markets. But it's quite a different experience for these players who happen to step into the Indian corporate sector which is a minefield of poor corporate governance. The recent crash of KS Oils is a classic example.
On 16th August the company's share price crashed by a whopping 32% on the Bombay Stock Exchange (BSE) following months of steady decline. Its biggest lender, Sicom Ltd, sold around 23.84 lakh shares which were pledged by the company.
That same day, Edelweiss Finance and Investment Limited sold around 44.50 lakh shares on the BSE at Rs9.13 a share. Earlier, on 12th August, Sicom had sold 25.78 lakh shares of KS Oils at Rs12.96 on the National Stock Exchange. The company has pledged around 80% of its shares against loans. There are stories doing the rounds that funds have been grossly mismanaged.
KS Oils, whose scrip has plunged by 90% since January 2010, had received investments from some large PE funds. In May 2009, Rajat Gupta-promoted, Asia-focused New Silk Route (NSR) invested around Rs135 crore through preferential equity shares. Also, Citigroup Venture Capital and Baring Private Equity Partners Asia invested Rs49 crore each through subscription to convertible warrants.
Currently, NSR Direct owns a 9.5% stake and Baring has 5% stake in KS Oils, which produces cooking products like mustard oil, rapeseed oil plus others like refined blended oils, vanaspati and also non-edible solvent oil. Baring bought into KS Oils when it acquired 50,000 acres of its palm oil plantations in Indonesia.
The third largest private investor in KS Oils is astute NRI businessman Siva Sankaran, who has an over 8% stake in the company through Siva Ventures. Siva has been the last resort for troubled businessemen. Those who know Siva well believe that he would not be a sitting duck, unlike some other private equity funds, and that he would find a way to get his money back. Siva also has a stake in Ruchi Soya, India's largest soya processing company.
It is most strange that Barings and NSR picked KS Oils from among a host of Indian companies that have comparatively better governance and stable finances.
Moneylife had earlier reported that the Intelligence Bureau in December 2010 noted massive price rigging and insider trading in KS Oils. (IB report available with us.) The company has also been accused of tax evasion. So what did the philanthropic Mr Gupta find attractive about this investment?
Two years back, New Silk's investment in high-profit 9x media group crashed and burned. 9x News was spun off from INX Media, after apparent large-scale mismanagement. It was probably the first case in India where private equity investors asked promoter-shareholders to get out of the management.
In a filling to the Bombay Stock Exchange on Wednesday, KS Oils informed that its chairman Ramesh Chandra Garg has sold 3.05% of his holding. With this sale, Mr Garg's share holding has is now down to 8.23%. Other institutional investors continue to offload shares.
While the government is facing difficulties due to the global situation, finance minister Pranab Mukherjee said he would not use proceeds from disinvestment to meet capital expenditure needs beyond March 2012
New Delhi: Finance minister Pranab Mukherjee today said he would not seek proceeds from disinvestment to meet capital expenditure needs beyond March 2012, despite facing difficulties due to the global economic situation, reports PTI.
"I would not like to seek a further extension even though I am in a difficult situation," Mr Mukherjee said replying to supplementaries during Question Hour.
In November 2009, the government had granted one-time exemption to utilise the proceeds from disinvestment of Central Public Sector Enterprises (CPSEs) for meeting capital expenditure requirements of selected social sector programmes.
The proceeds from disinvestment are channelised to a National Investment Fund (NIF), set up in 2005. 75% of the interest generated from the fund would be used to finance selected social sector schemes, which promote education, health and employment.
The remaining 25% would be used to meet capital investment requirements of profitable and revivable CPSEs.
Mr Mukherjee said no deposits were made to NIF from 2009-10 to 2011-12. During this period nearly Rs48,000 crore have been realised through disinvestment of CPSEs.
He made it clear that the government would not let its equity below 51% in any of the CPSEs.
Mr Mukherjee said government has already approved disinvestment of 5% paid up equity capital of Oil and Natural Gas Corporation (ONGC) and Steel Authority of India (SAIL).
He said approval has been granted for disinvestment of 10% paid-up equity capital of Hindustan Copper (HCL) and National Building and Construction Corporation (NBCC).
The disinvestment of HCL and SAIL is in conjunction with the issue of fresh equity of 10% and 5% respectively.
Proposals for disinvestment of 5% paid up equity capital of Bharat Heavy Electricals (BHEL) and 10% of National Aluminium Company (Nalco) are at various stages before seeking government approval, Mr Mukherjee said.
The minister said the budget estimates for disinvestment proceeds are Rs40,000 crore for 2011-12.
Schneider Electric India has received orders worth Rs110 crore to provide turnkey power and automation solution for three photovoltaic solar power plants
Schneider Electric India said it has received orders worth Rs110 crore to provide turnkey power and automation solution for three photovoltaic solar power plants.
The three plants together have a capacity of 22.3 MWp. In general, MWp or megawatts-peak, refers to power output related to solar energy.
In a statement, Schneider Electric said the order comprises two 5 MWp and one 12.3 MWp photovoltaic (PV) solar power plants.
Schneider Electric would be responsible for the design, engineering, manufacturing, installation commissioning of the plants as well as deliver the turnkey electrical and control solution.
"These solutions include supply of all components except modules which will be supplied by the customers only in these projects... Schneider is also providing complete operation & maintenance to its customers with generation guarantee," the statement noted.
Schneider Electric India, which is part of French group Schneider, is a specialist in energy management.