Three months after the debt-ridden Shree Renuka Sugars (SRSL) announced a deal to sell equity stake to Wilmar International (WIL), the world's largest palm oil processor from Singapore, its promoters are gearing up for a joint open offer with WIL.
But the higher stock price is going to play a spoilsport in the open offer that will be underway in two weeks.
On Friday, the stock closed at Rs 24.70 on BSE, much above the proposed open offer price of Rs 21.89 a share. As per guidelines by the stock market regulator Sebi, it is mandatory for Wilmar Sugar Holdings (WSH) and the Indian promoters to make an open offer to buy up to 26% of the expanded equity share capital of the company.
"We do not expect any great response to the open offer. Our focus will be on the next step of the proposed deal – a rights issue. Both promoters will invest equally and also subscribe to the unsubscribed portion of retail investors. As against the open offer, the funds via rights issue will come to the company. Pricing of the issue will be decided later," said an official.
The open offer has an unusual 'joint' clause that allows them to split shares between the Indian and foreign promoters. Standard Chartered Bank, which acted as financial adviser to the deal, is managing the open offer as well.
While most funds raised through rights issue will go to retiring SRSL's huge debt, a part will be used for capital expenditure.
In the first step, WSH has got shareholders' approval to pick up a 27.72% stake through a preferential allotment at Rs 20.08 per share, at a total investment of Rs 517 crore.
India's largest sugar refiner will be jointly controlled by the existing promoters – the Murkumbi family – and Wilmar, with both parties holding equal shareholding and board representation. As per BSE filing, Indian promoters hold 38.17% stake in SRSL, as on March 31.
"The company will be managed by the current promoters and the existing management. Wilmar will have equal representation on the board, but will leave day-to-day operations to the management to handle," said the official.
According the original plan, the last step of the deal involves Wilmar and the existing promoters of SRSL jointly participating in a rights issue to raise up to Rs 725.40 crore of primary equity capital for SRSL. According to data compiled by Bloomberg, SRSL had total debt of Rs 8,480 crore, as on March 31, 2013, up from Rs 840 crore in 2008.