TPG speeds up deal talks for Vishal Retail, but no pact yet

TPG speeds up deal talks for Vishal Retail, but no pact yet

New Delhi: In a bid to pre-empt a rival offer by Kishore Biyani’s Future Group, US-based private equity firm TPG Capital Lp sought to rush through a deal to acquire the assets of beleaguered discount retailer Vishal Retail Ltd on Thursday, but a formal agreement proved to be elusive.

TPG and Vishal agreed in principle on the terms after day-long efforts to reach a deal, but the retailer’s creditor banks deferred a decision, said a person with direct knowledge of the negotiations, who asked not to be named.

The consortium of banks that are part of Vishal’s corporate debt restructuring programme will discuss the deal next week before deciding whether to back an agreement under which TPG would take over the retailer’s assets, said the person.

An agreement would not only give TPG control of the company, but also mark the exit of Vishal Retail’s founder Ram Chandra Agarwal, who built one of India’s largest discount chains before it fell prey to the economic slowdown of 2008-09.

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“There has been a sudden change of emotion and the promoters are in a hurry to get the deal done," said the person cited above.

Vishal Retail spokesman Manmohan Sharma said talks with TPG were ongoing. Procedural issues were still being discussed, he said, but declined to comment on the specifics of Thursday’s talks. TPG director Amol Jain declined to comment.

In order to make the acquisition compliant with the rules on foreign direct investment in retail, Vishal will transfer all its assets to an entity engaged in wholesale activities, according to the deal that’s being discussed.

TPG will control the company through this so-called cash-and-carry venture, the only retail business in which India allows 100% foreign ownership. It’s unclear who will operate the retail part of Vishal’s operations.

The person cited above said both TPG and Vishal Retail had to fast-track the final agreement after Biyani’s Future Group made a bid for the company. Biyani declined to comment on his interest in Vishal Retail, which began as a tiny apparel store in Kolkata in 1986.

Agarwal opened the 150 sq. ft store selling ready-made garments after quitting his job as an assistant manager at a Kolkata metals firm.

Most of his expansion came in the 2000s. Sales almost tripled to Rs288 crore in 2007 from Rs88 crore in 2004, while net profit jumped to Rs12 crore from Rs38 lakh in that period.

Agarwal hired professional managers to help him run a retail network that had by then spread to many parts of the country and went in for an initial public offering in mid-2007 that was oversubscribed almost 70 times. Agarwal’s style of functioning, however, came under criticism from the professional managers he had hired for refusing to delegate power to them.

The economic slowdown brought on by the global financial crisis hit Vishal badly, leaving it with unsold goods and mounting debt, forcing bankers, including State Bank of India, HDFC Bank Ltd and ING Vysya Bank Ltd among others, to resort to the debt restructuring.

The banks that are not part of the debt recast, including Singapore’s DBS Bank Ltd, London-based Barclays Bank Plc and Germany’s Deutsche Bank AG have filed separate winding up petitions in the Delhi high court against Vishal Retail to recover their dues.