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Tuesday, May 19, 2009

New Silk Route buys into K S Oils

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MUMBAI: Private equity fund New Silk Route is buying into India's largest mustard oil company, the Morena, Madhya Pradesh-based K S Oils. The fund that bought the troubled financial services firm Dawnay Day and has invested in Reliance Telecom, is putting in Rs 135 crore for a 7-8% stake in K S Oils.

The Gargs-promoted K S Oils is raising Rs 450 crore via primary issue of equity shares, global depository receipts and warrants to be used to set up palm plantations in Indonesia and Malaysia. Besides New Silk Route, K S Oils already has other large PE investors like CVC and Baring. The Gargs, CVC and Baring are also investing in the company to maintain their respective holdings.

After the transaction is completed, the promoters' stake will stand at 38%, CVC's 11% and Baring's 7%. On Monday, the K S Oils scrip closed at Rs 52, up around 11% on BSE. PricewaterhouseCoopers is learnt to be exclusive financial advisor to the deal. K S Oils's global expansion is driven through its Singapore arm K S Natural Resources and is part of its backward integration plans. The Indonesian and Malaysian oil palms will assure supply of crude palm oil to India.

The K S Oils transaction, signed on Monday, reflects the changing scenario in PE space. Investment banking circles expect PE deals, preferential allotments and qualified institutional placements to pick up steam in the coming months, thanks the easing credit situation followed by stock market upswing. April has been reasonably good, with 15 PE deals worth $493.94 million being done, compared to the first three months of 2009, says advisory firm Grant Thornton.

However, the overall volume and ticket size, in comparison to the first four months of last year, were not remarkable. Following the global financial crisis, the number of deals has come down considerably as fund managers have become choosy about their investments.

They also intend to have a cautious approach as the meltdown have impacted the operating and financial performance of companies, which is a key parameter for investments.

A PE fund usually evaluates a company's potential future growth earnings and pays a multiple of this when it invests.

They say the upturn in stock markets since early march provides an exit opportunity for private equity funds that were forced to stay put in unlisted companies after failing to come up with an IPO within a specified time.