In early June, Spinner Capital Group, a $5 billion (Rs20,500 crore) hedge fund manager based in London picked up a 1.5% stake in Spice Communications Ltd for Rs41.4 crore in a pre-IPO deal. That was the fund’s fifth investment in India; over 18 months, it has invested $128 million in five companies, across sectors. And after Farallon Capital Management, New Vernon, and Old Lane (now acquired by Citi), Spinnaker is the fourth largest hedge fund investor in the Indian private equity space. The company’s representatives were not available for comment. In these 18 months, global hedge fund investors have completed deals valued at $1.4 billion in India.
Spinnaker, in which New York-based Lehman Brothers recently picked up a 20% stake, has focused on small and mid-sized companies so far, with the exception of Mumbai-based telecom service provider IDEA Cellular Ltd in which it acquired a 1.25% stake for around $35 million.
IDEA and Spice are the two telecom deals in which the fund has been involved. “Spinnaker bought the shares at around Rs45 per share,” says Salil Pitale of Enam Financial Consultants Pvt. Ltd, the book running lead manager for Spice’s IPO. Spinnaker’s first investment in India was in the Hyderabad-based Sanghi Industries Ltd in December 2005. “They picked up stakes in two tranches—10-11% through a secondary transaction and and other 13-14% through a direct preferential allotment. The price for the preferential allotment was Rs18.50,” says Bina Engineer, director of Sanghi Industries Ltd. Spinnaker has a stake of around 25% in the company at present. Sanghi is a diversified company with interests in cement and plastics.
The fund’s second investment was in IG Petrochemicals Ltd in which it invested around Rs125 crore through optionally convertible debentures. IG Petrochemicals is the world’s third largest producer of phthalic anhydride—a chemical used in the manufacture of plastic, paints and dyes. The hedge fund has the option to convert the debentures to equity at the rate of Rs200 per share. “We have paid back Rs35 crore already. They chose not to convert the shares as our share price is below Rs200,” says Nikunj Dhanuka, managing director of IG Petrochemicals Ltd. The company’s stock is trading at around Rs63 a share. The fund’s investment helped IG Petrochemicals to reduce its debt from Rs683 crore to Rs125 crore in March.
Hyderabad-based Pennar Industries Ltd, a cold-rolled steel strips maker, was Spinnaker’s third deal. Pennar had run up a debt of Rs200 crore, and Spinnaker and Eight Capital invested around Rs122.4 crore in July 2006. This will turn into a 27% equity stake in January 2008. Eight Capital has invested one-fourth of the Rs122.4 crore.
“Of the Rs122.4 crore, Rs50 crore is in the form convertible debentures at the rate of Rs14.75 per share and Rs72.4 crore is in the form of optionally convertible debentures at the rate of Rs50 per share,” says Nrupendar Rao, chairman of Pennar Industries Ltd.