New Delhi: An investment arm of global private equity firm Warburg Pincus Llc. plans to sell a portion of its equity stake in DB Corp. Ltd, which owns India’s second largest Hindi daily Dainik Bhaskar, less than two years after it first invested in the company.
Cliffrose Investment Ltd, the Mauritius-registered affiliate of Warburg Pincus, is planning to sell only to a so-called third party, or one not associated with the promoters of DB Corp., before the company goes for a proposed sale of shares to the public. Cliffrose, which currently holds a 7.14% stake in DB Corp., has said this in a letter to the company. This information is present in the filing DB Corp. has made to India’s stock market regulator Securities and Exchange Board of India, or Sebi, in the run-up to an initial public offering (IPO) of shares.
It’s not unusual for private equity firms to cash out of investments ahead of a share sale or even after it, either to make good on their gains, or hedge their bets should the market turn weak.
“Such a move does raise the question of why an existing investor wants to sell out if the future of the company is bright. However, I don’t think it’ll have much of an impact. At the end of the day, it all boils down to the price band, or at what valuation the IPO is being offered. If the firm’s fundamentals are strong, just because a foreign investor sold a bit of their stake, the IPO is not going to be adversely impacted,” said Hitesh Agrawal, head of research, Angel Broking Ltd.
Cliffrose had originally invested in Writers and Publishers Ltd (WPL) in May 2006, subscribing to 76,305 equity shares. The printing and publishing business was subsequently demerged from this and consolidated under one entity, DB Corp., and Cliffrose ended up with a 7.14% stake in DB Corp. Media reports at the time had valued this deal at Rs150 crore. The timing and price of the planned IPO of DB Corp. are yet to be worked out. Companies usually do this only after receiving a clearance from Sebi.
“We stand by whatever we have said in the DRHP (draft red herring prospectus). We have no further comments to offer,” said K. Venkatraman, company secretary and chief compliance officer of DB Corp.
A spokesperson for Warburg Pincus said, “The firm is bound by internal operational policies which does not allow discussion of its investment activities in its portfolio companies.”
Warburg has previously exited investments in Bharti Airtel Ltd and Gujarat Amuja Cements Ltd profitably.
DB Corp. plans to sell 18.8 million equity shares, or 10.2% equity, of the post-issue equity of the company.
It is raising the money to set up 11 new publishing units, each with a capacity to print 50,000 newspapers per hour. A part of the money would also be spent in upgrading the existing facilities and repaying loans.
The Indian print media industry, despite competition from television and other media, is projected to nearly double revenues from Rs12,800 crore to Rs23,200 crore by 2011, according to a report by audit and consulting firm PricewaterhouseCoopers.
Hindi newspapers accounted for roughly one-fourth of these revenues in calendar year 2006, according to another report by TAM Adex.
In another deal agreed to in December 2007, Cliffrose is picking up a 3.2% stake in Synergy Media Entertainment Ltd (SMEL), which is a subsidiary of DB Corp. and is engaged in the FM radio business. According to the terms of this deal, SMEL will allot 1.33 million shares to Warburg at a price solely determined by Cliffrose, but not below Rs11.50 per share.
Mint is published by HT Media Ltd, which also publishes Hindi newspaper Hindustan. Hindustan competes with Dainik Bhaskar in certain markets.