Mumbai: Edible oil maker Ruchi Soya Industries Ltd has agreed to sell a 51% stake in the company along with its entire branded oil distribution business for Rs4,000 crore to private equity firm Devonshire Capital.

The company will use the funds to part repay its over Rs12,000 crore debt as of 30 June, Ruchi Soya said in stock exchange filings. The company’s board approved the decision in a meeting held on Thursday.

Approvals from Ruchi Soya’s creditors, the Securities and Exchange Board of India (Sebi), and the National Company Law Tribunal (NCLT) are pending.

As part of the deal, Ruchi Soya is selling its entire stake in wholly-owned subsidiary Mrig Trading Pvt. Ltd into which the company will spin off its branded oil distribution business, it said in a press statement.

“This strategic investment by Devonshire will enhance the value of our business and provide an effective solution to resolve our outstanding issues with the banks, financial institutions and operational creditors," Dinesh Shahra, managing director and CEO of Ruchi Soya, said in the statement. “We are optimistic on an early completion of this restructuring exercise after all necessary approvals of the lenders and legal formalities."

A Ruchi Soya spokesperson declined to comment on the specifics and timeline of the deal.

Ruchi Soya’s board set up a committee to look into restructuring options for its business, which included spinning off individual businesses earlier this year, Mint reported on 6 September. Its primary business is edible oils refining, which made up 74% of its revenue in FY16-17, according to the company’s annual report.

“The deal is subject to approvals, and so it’s not done yet," Amarjeet Singh, country head, India, at Devonshire Capital said in an interview. “We don’t comment on ongoing investment processes. We are looking at it, it’s an interesting company, there’s a long-term strategic value in it," he said.

Thailand-based Devonshire Capital focuses on stressed assets in Asia, Singh said. “We were set up to look at stressed assets in South-east Asia and Greater Asia, this is going to be our first investment in India if it happens."

Ruchi Soya is currently negotiating terms for debt resolution with its creditors even as it is battles insolvency proceedings in the NCLT with lenders DBS Bank and Standard Chartered Bank for pending repayments worth Rs184.38 crore, Mint reported on 15 September. Ruchi Soya is part of the list of 26 companies that the Reserve Bank of India (RBI) sent to banks asking them to conclude a debt resolution process by 13 December. After this deadline, unresolved accounts will be referred to the NCLT for proceedings under the Insolvency and Bankruptcy Code (IBC).

Care Ratings has a default rating on Ruchi Soya’s debt instruments, according to its latest note dated 10 January 2017.

“The reaffirmation of the ratings for the bank facilities of Ruchi Soya Industries Ltd takes into account recent delays in servicing of debt obligations on account of stress on its liquidity on the back of huge loss posted in FY16 and subdued operating performance in H1FY17," Naresh Golani, analyst with Care Ratings said in the note.

Ruchi Soya’s promoter, the Shahra family, and companies owned by them, hold 54.85% in the company. Of this, Soyumm Marketing Pvt. Ltd is the largest shareholder with 13.66% share. Managing director and CEO Dinesh Shahra owns 0.63% as an individual shareholder and an additional 9.74% on behalf of two separate trusts, company stock exchange filings show.

Shares of Ruchi Soya Industries rose 4.59% on Thursday to close at Rs29.60 on BSE, while the Sensex slipped 0.08% to end the day at 33,573.22 points.

Close