Lock-in on Catamaran’s stake in SKS lapses in Jan

Come January 2012, Infosys Technologies founder NR Narayana Murthy-founded venture capital firm Catamaran would find the doors wide open to exit the beleaguered microfinance major SKS Microfinance.

Though one of the two lock-in conditions for Catamaran’s holding in SKS has lapsed long back, sources said that a formal call on the exit from the microfinance company would be taken only after the second condition too is fulfilled.

Catamaran had about 9.38 lakh shares representing 1.3% of the equity of SKS for about Rs28 crore in January 2010.

The shares were locked in on two conditions — completion of two years of holding, which would be formally over in January 2012 or the market value of the equity shares as calculated on the basis of average closing prices in a calendar week falls below Rs400 per equity share.

The agreement of Catamaran with SKS, sources said, had specified that the lock-in does not apply if one of the two conditions is fulfilled.

“With the market value of equity slipping below the threshold of Rs400 per share long back, Catamaran was free to exercise its option of exiting SKS. But, they have not done that so far. It is believed that as a matter of principle the VC is keen on waiting for the second condition on lock-in too to be over in January 2012,” the source said.

Though ruling out the possibility of any of its early stage investors exiting the company when a fresh QIP is at an advanced stage, an official of SKS said that there can’t be any stopping if Catamaran decides to exit.

“The lock-in conditions were set with an intention of seeking the support of the investor during the growth phase. Once the conditions are fulfilled, the investor is free to exit. It is finally the call of the investor on when and how to exit,” the official said.

While there were reports that the VC had formally taken a decision to exit and had appointed bankers to scout for buyers, the official said that the shares were freely tradable and can be sold in the market. “It is interesting to understand why a banker should be appointed to sell the shares when they can be sold in the market,” he said.
However, sources in the brokerages do not agree with the logic of a VC exiting the company when the market price has nosedived. The shares of SKS were listed on the bourses at `1,036 and went on to hit a high of about `1,600. Catamaran had bought the shares at a price of `300 a piece. SKS shares closed at `93.30 on Friday.
“Normally, the principle of averaging comes into play and at such a price erosion one would go in for buying more shares than selling. Still, we can’t predict the strategies of a venture capital firm. There are always reasons beyond just the market price to decide on exiting a company,” a senior stock analyst in Hyderabad said.