Mumbai/Bangalore: Cafe Coffee Day retail chain owner V.G. Siddhartha has ventured into the logistics business by acquiring majority control of Sical Logistics Ltd for around Rs200 crore, thus effectively ending the logistics run of one of Chennai’s oldest business families, the M.A. Chidambaram Group.
Tanglin Retail Realty Developments Pvt. Ltd, a group company of Coffee Day Resorts Pvt. Ltd, which operates close to 1,000 Cafe Coffee Day outlets across India, will acquire majority control of Sical Logistics through a combination of a direct stake purchase from the promoter Ashwin C. Muthiah, a preferential issue of shares and through an open offer, a person familiar with the development said.
The buyer will initially purchase a 15% stake in the company through a preferential allotment at Rs76 a share and follow it up with an open offer in accordance with India’s takeover law. The deal will lower the promoter’s stake in Sical to around 15%. Ashwin Muthiah, Sical’s promoter, currently holds 42.66% of the company. Edelweiss is the exclusive adviser to the deal.
The preferential allotment of 16,08,0010 shares to Tanglin was cleared by Sical’s board on Saturday, it said in a statement. Tanglin also informed the stock exchanges on Saturday that it had acquired 39,52,000 shares in Sical on 12 November through a block deal.
Siddhartha is flush with cash raised in April 2010 from three private equity funds—Kohlberg Kravis Roberts India Advisors Pvt. Ltd (KKR India), Standard Chartered Pvt. Equity Ltd and New Silk Route. They invested Rs960 crore for a 25% stake in the company, which also owns a private equity fund, Global Technology Ventures, three resorts in southern India under the Serai brand and Terra Firma Pvt. Ltd, a waste-management business.
The acquisition will give Siddhartha access to logistics services such as stevedoring, port terminals, customs house agency, shipping agency, trucking, railroad and warehousing facilities that Sical built over the past decade as trade boomed in the world’s second fastest growing major economy.
Sical handles around 26 million tonnes of bulk cargo and 500,000 standard cargo containers a year. The firm reported a net profit of Rs26.36 crore on revenue of Rs537.23 crore in the year to March 2010.
Sical’s delivery network includes an exclusive walk-in berth at Chennai port for ships carrying bulk cargo; a container terminal at Tuticorin port; 225,000 sq. ft of storage across 17 warehouses; owned and regularly contracted fleet of more than 1,000 transport vehicles and container freight stations at three locations across India.
Apart from being an attractive investment opportunity, Sical will also cater to the in-house supply chain requirements of the diversified group with interests ranging across production and export of coffee, hotel properties and furniture. It currently relies on multiple service providers for its supply chain requirements.
Significantly, IDFC Private Equity (PE) sold its 13.28% stake in the logistics company for Rs43.8 crore on the National Stock Exchange through a bulk deal last week. IDFC PE took a haircut on its three-and-half-year-old investment of Rs116 crore made in March 2007—it sold the stake for Rs83.4 per share against its acquisition price of Rs222 per share.
The entire stake was acquired by Jupiter Capital Pvt. Ltd, a Bangalore-based investment company promoted by entrepreneur and lawmaker Rajeev Chandrasekhar.
Though IDFC PE had two board seats on Sical, an executive at Jupiter Capital said that it was not interested in assuming the board seats because the stake purchase in Sical was in the form of a portfolio investment.
“We have no plans to raise our stake in Sical either,” said Sudhakar Gande, a director at Jupiter Capital.
Several people Mint spoke to said that Ashwin Muthiah, the chairman of Sical, has come under pressure to sell his holding in the company because he was strapped for cash to fund a $50 million (Rs223 crore) foreign currency convertible bond (FCCB) redemption coming up in March-April 2011.
“The FCCB holders would not convert because the prices are ruling very high,” said a second person familiar with the development who did not want to be identified. Muthiah also faces hurdles in raising funds from the market for redeeming the FCCB because banks and financial institutions would be wary of lending money to him due to the financial troubles surrounding Southern Petrochemical Industries Corp. (Spic), the parent company’s flagship fertilizer unit at Tuticorin in Tamil Nadu.
Sical demerged its non-logistics businesses into a separate company in 2007 in a bid to focus exclusively on end-to-end multimodal integrated solutions for the logistics of bulk and containerized cargo. But things did not pan out well for the firm.
Around the same time, Sical divested its non-core businesses—palm oil, refractory, auto, drums, agri-bio products, specialty chemicals and flexible shafts—to position itself as a pure play integrated logistics provider.
“Today, Sical is hard-pressed for cash,” the second person mentioned earlier said. To tide over the liquidity crunch, Ashwin Muthiah has been selling some of his assets.
In late 2009, Sical Logistics sold its only platform supply vessel, or PSV, to Norwegian shipping firm Farstad Shipping ASA for around $24.8 million or 150 million Norwegian kroner, effectively turning its back on a three-year-old strategy to expand into the lucrative global offshore logistics market.
A PSV provides offshore logistics such as supplies and cargo transport for deepwater oil and gas drilling operations.
The strategy had been flagged off in September 2006 with the acquisition of Singapore-based Bergen Offshore Logistics Pte Ltd, a provider of specialized logistics for offshore oil and gas exploration, for $96.9 million. The acquisition gave Sical access to the PSV, which was purchased by Bergen Offshore for $31.3 million.