Singapore based GIC SI buys up to 25% equity stake

Tag : sheeting fabrics


Singapore based GIC SI buys up to 25% equity stake in Reid & TaylorIndia Ltd for Rs 9000 million

S.Kumars Nationwide Ltd (SKNL), pioneers in manufacturing anddistributing branded textile and ready-to-wear clothing, announcedthat its wholly owned unlisted subsidiary Reid and Taylor (India)Ltd (RTIL) has come to an agreement with Singapore based IndivestPte Ltd. (Indivest) an affiliate of Government of SingaporeInvestment Corporation Special Investments (GIC SI) whereby GIC SIwill invest Rs 9,000 million through a fresh issue of equity sharesand warrants. Subsequently GIC SI will in effect own up to 25.4%stake in RTIL and the balance 74.6% stake will remain in the handsof SKNL.

RTIL is valued at Rs 35,400 million at transaction price and SKNLwill now hold equity worth around Rs 26,400 million at Transactionvalue. This association with GIC SI provides strong support toSKNL's vision to emerge as a market leader in premium and luxuryfabrics and apparel. The Investment establishes a high degree ofconfidence amongst global institutional investors towards RTIL'sbusiness model and the ability of its management to createsustained value for all its stakeholders.

Rs 9,000 million cash infusion to strengthen operations and balancesheet:

In the recently completed transaction, Indivest, an affiliate ofGIC SI invested Rs 9,000 million through a fresh issue of sharesand warrants enabling it to acquire a 25.4% stake in the Companywith SKNL owning the balance 74.6% stake. RTIL was valued at Rs35,400 million for the transaction. Out of Rs 9,000 million, Rs7,900 million will be received as equity at commencement oftransaction itself. As a result of which GIC SI will acquire 23%stake in RTIL. The RTIL equity shares are to be issued at Rs 695.18per share to GIC SI. The remaining Rs 1,100 million will be in theform of warrants, which shall be converted into equity at the sameprice within 36 months, or at the time of IPO, whichever isearlier. Post conversion, GIC SI's slake will increase to 25.4%with the balance 74.6% in the hands of SKNL.

Funds from the transaction will be utilised to assist the growthplans of both RTIL and SKNL. in areas such as capacity enhancementand debt repayment The expansion plans that cover investments of Rs1,000 million will include setting up a facility for manufacturingtailor made suites (Reid & Taylor) and launching premium businesslines. The balance funds shall be deployed towards completerepayment of the debt portfolio of both RTIL and SKNL Rs 4,400million of the proceeds will be loaned to SKNL for repayment of itsdebt enabling it move out of CDR (Corporate Debt Restructuring)obligations from its existing lenders.

RTIL will also retire Rs 2,500 million of CDR and other debt on itsbalance sheet. This will significantly increase the financial andbusiness flexibility of both RTIL and SKNL which will be conduciveto overall growth. Rs 1,100 million that will accrue in the futurefrom the conversion of warrants into equity will be utilized at alater date for upgrading RTIL's existing integrated worsted fabricsmanufacturing facility located in Mysore, Karnataka. This millalready has a capacity of 840,000 metres per annum which isexpected to be enhanced to 1,340,000 metres per annum goingforward. The Mysore facility already supplies fabric to Reid &Taylor (Scotland) and once the facility is upgraded it will be in aposition to comfortably cater to both Reid & Taylor (Scotland) andthe rising demand in the domestic market.

Commenting on the transaction Mr. Nitin S Kasliwal, ManagingDirector and Vice Chairman of SKNL said, "This transactionprovides us with significant opportunity not only to expand theRTIL business but also offers us a chance to execute several plansthat we have in mind. The investment symbolizes a high level ofconfidence amongst global investors in our ability to execute andcreate distinct businesses that have the potential to deliversustained value. We plan to utilize the proceeds of the transactionfor enhancing manufacturing capacity, introducing new operatinglines including adding brands that have the potential to furtherenrich our business portfolio, and towards restructuring of ourloan portfolio that will strengthen the quality of our balancesheet. We are absolutely delighted to be associated with Indivestand GIC SI as they are a highly respected global investor who takesexposure only after conducting meticulous research on any investeecompany. I am confident that their trust in us will be rewarded byRTIL delivering consistently superior Performance goingforward."

RTIL to gain strong operating focus as a distinct entity:

SKNL has a diverse business portfolio encompassing nearly everysegment of the textile sector in India. Very few companies in theindustry have such wide-spread participation. Owing to themagnitude of its involvement in every segment in the textile space,SKNL was not gaining optimal credit and value benefits for itsefforts in the top half of the value chain vis-a-vis RTIL. Further,Reid & Taylor had reached its critical size as a division of acompany and more focus was required for the brand to grow in linewith the management's vision.

Keeping this in mind, RTIL was incorporated as a fully ownedsubsidiary with effect from January 01, 2008 enabling it to performto its maximum potential and get valued accordingly.

Business outlook is strong:

Brandhouse Retail Ltd (BHRL) is a fully owned subsidiary of SKNLand is the company that holds sole rights for distributing RTILofferings through the exclusive brand outlet (EBO) route. BHRL willprovide impetus to RTIL's performance going forward as it plans toincrease the number of RTIL EBOs to 160 from 100 by the end of thecurrent financial year. This number is set to be enhanced further,to around 400 stores by the end of FY2010. RTIL also expects toincrease its distribution through multi brand outlets (MBO) from11,000 currently to around. 20,000 by the end of FY2010. A largechunk of this expansion will take place in tier one and tier twocities enabling the Company to penetrate these high growth regionsthat are today characterized by brand conscious individuals withrising disposable incomes.

In FY2008, Reid and Taylor delivered revenues of Rs 4,872 millionthat are expected to double over the next three years complementedwith a noticeably strong earnings performance. Within 10 years ofits inception, the Company is already positioned amongst the toptwo luxury clothiers in India indicating that it is backed by acomprehensive business model and a highly capable management team.With fresh funds in place and a lighter balance sheet the companyis expected to grow strongly going forward. Furthermore, RTILenjoys an 18% market share in the premium clothing segment and thisgrasp of the market seems well positioned for expansion given theaggressive stance of the Company and the favourable marketscenario.