Mumbai: Jain Irrigation Systems Ltd, Asia’s largest irrigation equipment maker, will raise 792 crore by issuing equity shares in the company and its food business unit to agri-business funding firm Mandala Capital Ltd and promoters.

Out of 792 crore, Mandala Capital, a London-based investment fund focused exclusively on investing in agri-business in India, will invest 396 crore in Jain Farm Fresh Foods Ltd within the pre-money enterprise valuation range of 2,500-3,000 crore, subject to the food unit’s performance.

In an interview, Anil B. Jain, managing director at Jain Irrigation Systems, said Mandala Capital is likely to get a 14.08% or 17.13% stake in its wholly owned subsidiary Jain Farm Fresh Foods, subject to its performance.

Mandala Capital will invest 285 crore in parent company Jain Irrigation Systems at 80 per share through compulsorily convertible debentures (CCDs) at 5% annual coupon, he said.

Shares of Jain Irrigation Systems lost 3.67% to close at 65.65 on Friday on the BSE, while the benchmark Sensex lost 0.15% to close at 26,265.24 points.

The CCDs would be converted in equity shares in next 18 months, giving a 6.5% stake in Jain Irrigation Systems.

The company will also make a preferential issue of equity warrants to the promoters for an aggregate amount of 111 crore at 80 per share through a warrants structure. The preferential issue is done at 21.67% premium to the current price.

The promoters stake would be around 27% after the deal.

Jain Irrigation Systems, founded by Bhavarlal H. Jain, will receive the entire 792 crore by mid-December, subject to regulatory and shareholders approvals.

“How many home-grown food companies have fetched this kind of valuation in India? At the high end of the agreed range, the valuation of Jain Farm Fresh Foods by Mandala’s investment in the company is almost equal to the entire current market capitalization of parent Jain Irrigation Systems," Jain said.

He said the transaction demonstrates, for the first time, the high intrinsic value and growth potential of global food vertical.

On Friday, the market capitalization of Jain Irrigation was at 2,909.08 crore. Jain Farm Fresh Foods is expecting earnings before interest, tax, depreciation and amortization (ebitda) of 250 crore for the current fiscal year.

“Its positive and huge valuation for food business compared to the parent company. Jain Farm Fresh Foods has plans to enter into business to consumer (B2C) space with its products, including frozen mango pulp and fruit pulp, a shift from traditional business to business (B2B) space," Jain said.

The primary purpose of raising money is to strengthen Jain Irrigation Systems’ balance sheet and provide growth capital for newly formed Jain Farm Fresh Foods, under which its global food business will be organized.

Jain said the company is delighted to be putting together such a large equity investment from Mandala Capital even in challenging global market conditions. “The term and structure of this transaction will enable Jain Irrigation Systems to continue with balance sheet strengthening and sustainable growth," he said.

The consolidated debt of Jain Irrigation System was at 4,231.42 crore as on 31 March 2015 wherein the food unit has a share of 585 crore.

The deal is long-term positive for Jain Irrigation Systems, according to an executive at a domestic brokerage. “Jain Irrigation always wanted to better its debt-to-equity ratio by develeraging the balance sheet. At least 500-600 crore will be allocated for debt reduction, resulting in huge savings on interest cost," the executive said, requesting anonymity.

Jain too admitted that the proceeds would be used for retiring debt and the debt-to-equity ratio would be 1:1 after the deal from current 1.75:1. A high ratio would mean that the company has been aggressive in taking the debt route to finance its assets.

Yes Securities Ltd acted as exclusive financial advisers to Jain Irrigation Systems in this transaction.

In August, Jain Irrigation Systems said it will sell its food business unit to its subsidiary to create strategic focus on the fast-growing food business.

Jain Irrigation, which began selling micro-irrigation systems in 1986, has approved the sale of its food business by way of a “slump sale" to Jain Farm Fresh Foods, “to create strategic focus on fast growing food business and consequent value creation opportunities".

Slump sale means the transfer of one or more undertakings as a result of the sale for a lump-sum consideration without values being assigned to individual assets and liabilities.

The food business of the company comprises food manufacturing units at Jalgaon (Maharashtra), Vadodara (Gujarat) and Chittoor (Andhra Pradesh), besides indirect subsidiaries SQF2009 Ltd of the UK and Cascade Specialities Inc., US.

Jain Irrigation is engaged in businesses that include micro-irrigation systems, pipes, plastic sheets, agro-processed products, renewable energy solutions, tissue culture plants, and financial services.

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