After having taken the direct and institutional routes, they are adopting a mechanism which used to be popular in the 1980s - the ‘blank cheque company’.
MUMBAI: American investors’ fascination with the Indian market continues. After having taken the direct and institutional routes, they are adopting a mechanism which used to be popular in the 1980s - the ‘blank cheque company’.
In this route, a company is formed with the sole purpose of acquiring other companies. Called the blank cheque company, it raises money from US and other countries to invest in countries like India where there is a growth potential and need for funds.
One such company, looking specifically at investments in India, has acquired a 14.9% stake in Delhi-based brokerage and arbitrage firm SMC Group for Rs 164 crore.
Millennium Indian Acquisition is a blank cheque company listed on the American Stock Exchange in July last year with an offer size of 72,50,000 units of $58 million. The top management of the company is of Indian origin.
SMC group chairman Subhash Chand Aggarwal said the funds from the deal will be useful to expand the groups’ brokerage business further. “They were searching for some investments in India and showed interest for a stake in us. This 14.9% stake values us at Rs 1,100 crore,” Aggarwal said.
Besides the money, SMC will benefit from the American companies’ international experience, Aggarwal said.
Mumbai-based Singhi Advisors, which brokered the deal, claims this to be the first deal by a ‘blank cheque’ company in India. Though some blank cheque companies had earlier shown interest in biotech companies, no deal had been struck.
Gopal Agarwal, vice-president, Singhi Advisors, brushes aside doubts about such companies saying the US regulator has ensured that they follow stringent rules.
“The money is kept in an escrow account and only given to the company when they give a concrete plan. Also, if a company fails to find anything to acquire within 18 months, the money is returned to the shareholders,” Agarwal said, adding, about 6-7 companies have started in the US recently and 15-20 are on the way. These companies usually go for sectors which are growing or have a potential for growth.
F Jacob Cherian, CFO of MIA, invested in SMC noting the “vibrant phase” in the Indian stock market. The company intends to focus on privately-owned businesses within the financial services, healthcare, infrastructure, consumer retail and hospitality sectors that offer innovative cross-border growth opportunities, Cherian said.
MIA is interested in investing more money in SMC, but Aggarwal of SMC says any deal would depend on “mutual consent” and there was no such plan as of now.
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