Was ICICI Venture CEO Ms.Renuka Ramnath dozing at Subhiksha Board meets?

India’s premier PE firm ICICI venture (I-Venture) with more than $2 billion fund size can’t be so naïve.

I-Venture CEO & MD, Renuka Ramnath says the management of flagging retail chain Subhiksha (in which the firm has a 23% stake and has the power to appoint majority directors in its Board) kept it in the dark regarding the goings on. (She was one of the Board members then). She goes on to add "As a responsible investor, despite being minority shareholders and not having management control, we are talking to all players concerned and trying to seek a possible solution which will be in the best interest of all, including the employees”.

Here is the punch line "We didn’t know what to trust and what was the real intention of the merger” (with a listed NBFC Blue Green Constructions with which Subhiksha sought to reverse merge for widening its shareholder base).

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Oh, really? A firm in which a leading PE firm has a 23% stake and the firm knows "nothing" about decisions as critical as a reverse merger? It was all over the media back in June, 2008 when Subhiksha acquired 40% stake in the little known listed entity Blue Green Constructions. The Board (in which I-Venture has majority) Meeting in which the acquisition was to be ratified was reportedly held on June 30, 2008 and then Ms.Ramnath didn’t seem to object.

The fact is, had the back door listing strategy worked well, I-Venture would have exited the firm lock, stock and barrel thro divesting its stake either in the open market or thro a secondary exit to other PE firms. The manner in which it “quietly divested” 10% stake for Rs.230 crore to Azim Premji’s PE arm Premji Invest back in September 2008. While I-Venture could dupe Azim Premji, it couldn't dupe the public investors since the merger didn't go thro.

Now why would a PE firm exits in a hurry if it wasn’t in control of the company and wasn’t aware of the murky goings on? Normally if there is a listing possibility, PE investors would rather wait for the market to discover the price. Even if one were to buy Ms.Ramnath’s argument – that Subhiksha did not submit audited accounts beyond March, 2007, it should have disclosed the fact to Mr.Premji which it clearly did not. I-Venture looked after its own interests, to hell with the company, co-investors or employees. But no one would blame the PE firm for that because it just cashed out on an opportunity. But you can’t excuse it if it says it was kept in the dark by the investee company management, despite wielding majority control of its board and in a company where it has a substantial 23% stake.

It’s a little too naïve – to expect the world to believe Ms.Ramnath. It’s ok if she chickened out fearing prosecution when legal notices (from unpaid vendors, employees, EPFO) started flying in. That's when she along with her colleague exited the Board of Subhiksha. But then it also means she wasn't exactly awake all the while at those Board Meetings leaving Subhiksha MD Mr.R.Subramonian to run the business as he did.

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Time for ICICI Venture to mull an IPO…?

I keep reading about the phenomenal success of Fortress IPO and related reports and had also chronicled it in one of my earlier blog posts. Going by this Fortune article, it seems the world’s still awestruck and clearly has not had enough. It as well reminds Blackstone is next in line to hit the road.

Excerpts -

“On the night before Fortress Investment Group became the first hedge fund to trade on the New York Stock Exchange, Wesley Edens and the other four principals celebrated in a manner that befits the firm's intentionally low-key profile. They gathered at a bar on the Upper West Side of Manhattan.

By the next day's closing bell, though, Edens could afford more than just beer and pretzels: His shares from the IPO were worth approximately $2.3 billion. Six weeks later, on March 22, Blackstone Group followed suit when the private-equity shop revealed plans to raise $4 billion in an upcoming IPO.

Since that news broke, Wall Street has been buzzing about who will be the next firm to announce plans for an IPO and invite the public into a world once reserved for high-net-worth individuals and institutional investors.”

I took time off to think what if our local Private Equity firms decided to go public ? Would they fetch similar buoyant response ? The existing listed PE firms like IDFC an Infrastructure focused financial powerhouse ( P/E 18.6, Market Cap $ 2.13 billion) and ILFS Investment Managers a pureplay PE firm (P/E 24, Market Cap $ 76 Million) have been doing well for themselves in comparison with the broader market. But the big fish of them all is ICICI Venture, which is the Private Equity / buyout arm of largest new generation Bank ICICI Bank, with funds under management in excess of $ 2 billion. It would be interesting to watch if ICICI Venture decides to go public and the likely valuation that it might secure – given the dynamism demonstrated by its CEO Mrs.Renuka Ramnath, it is not totally out of whack to speculate.

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And if it chooses to hit the road, here’s what Mrs.Ramnath and her team can aspire for - more or less.

Being comfortable in the limelight may be what finally determines who does and doesn't go public. Given that affairs of ICICI Venture are pretty much transparent, and its very much in the limelight already for Mrs.Ramnath’s stellar fundraising capabilities, if at all there’s anything to hold back, it could only be its investors privacy concerns than one of its likely valuation.

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I'd like a slice of the action....What do you think ?

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Happy flippin' ...Renuka !

Ever tried turning an ocean liner like you do a speed boat ?

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Nah… When you want to turn a speedboat, you turn the wheel. For an ocean liner, you have to plan two days ahead. RMS Titanic couldn’t swerve the iceberg because of it. The only tribe that seems to have managed it so well is Private Equity managers. The ocean liner metaphor here is to a Public company and the speed boat is what it becomes in the hands of private equity. I am referring to the art of buying out companies, sprucing them up and staging lucrative exits. It calls for a lot of guts.

I really wish the trend to pick up in India. Like many firsts to its credit, ICICI Venture can deservedly bag this too – why not…when it’s slogan is “fueling your aspirations”. If she can pull it off, Renuka Ramnath, CEO will surely be tap dancing her way to office soon after laughing her way to the bank.

As per this report, ICICI Venture, the country's largest venture capital firm, is likely to make a return of four times on its cost of acquisition. It had acquired the refractories business from ACC for about Rs 250 crore in 2005. Of that roughly 40% (Rs 100 crore) was equity and the balance was debt. ICICI Venture expects the prospective buyer to shell out Rs 550 crore. Taking out the debt portion of Rs 150 crore, the return on its investment will be Rs 400 crore, equalling four times returns.

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UBS Securities is believed to be advisor to ICICI Venture for the sale of ACE. If ICICI Venture is successful in selling ACE, it would be its first exit from a company, in which it has made a complete buyout. Other companies where it has gone in for a buyout include Infomedia India (formerly, Tata Infomedia) and VA-Tech India (engineering services firm).

The ease with which you flip, is a function of timing and discretion. The next opportunity that’s lying in wait often prods it and the cycle rides on. Too bad these guys not being at the wheel of the Titanic on that fateful night…!

Happy flippin’….Renuka !
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Spunky PE - J.M.Trivedi of Actis

Besides Renuka Ramnath [CEO, ICICI Venture] whom I admire a lot in Indian PE scene, J.M.Trivedi of Actis has demonstrated spunk. Here he is getting a professional CEO for Ahmedabad based Paras Pharma (makers of MOOV, DERMICOOL, KRACK) knocking back family management to a corner.

ICICI and Actis can be counted among the few buyout funds active in India. Most others settle for negotiated PIPE investments in listed firms or do some odd venture capital investments in unlisted firms. Their fortunes glide along the directions of equity markets and fund managers have no active participation besides attending board meetings and scanning dull reports. Nothing of the sort where they take majority control and guide their fortunes themselves. It calls for strategic clarity besides pure spunk. That’s where the process discipline matters.

I wrote about Wockhardt back in March, 2007. Now after the IPO of its subsidiary (Wockhardt Hospitals) got pulled back, the deal looks even better. Mr.Trivedi, why don't you take a look?
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The Retail Rats...

Yesterday it was Subhiksha. Today it’s Vishal Retail. Auditors are smelling a rat all over the place, not just inside the retail stores. The charge – Books are cooked, inventory depletion happening at an alarming pace. All in the midst of a CDR process in tow.
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Retail is a fantastic sector to book cooks. The characteristic of the business also helps. There is a huge inventory base and is all meant for trading. They don’t manufacture anything and so it’s just sourcing, shelfing and selling. Now that leaves enough scope for spillage, wastage, damage and an issue of age itself in case if the goods are slow moving or just…non-moving.
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The Agarwals of Vishal Retail have played it to the hilt. They raised about Rs.110 crores by IPO in June, 2007 then went on to raise over Rs.800 crores of debt that is now seeking reprieve from lenders. The news was that the lenders have also agreed to finalize a CDR package of Rs.730 crores. Now there is the demand for forensic audit. A la Subiksha scam where ICICI Ventures was an early investor, played along the Board, then Renuka Ramnath, CEO of I-Ventures quit pretending ignorance when she was about to be hauled up for investigation but not before palming off a substantial stake to Azim Premji’s PE fund.
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I say everyone is an accomplice. A fraud of this magnitude, at a very base level (i.e.rapid build-up of inventory and writing it all down in double quick pace cannot happen unless everyone including Auditors, Bankers, Board members all collude. Ordinary investor is the only one that is left off circle. This is bullshit and it should clearly stop.
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Or just do away with Auditing as it exists now. Make the Auditors directly responsible to shareholders – not just making certificates and disclaimers.
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"ICICI Venture is lying"

Just finished reading this BS report – “PE firms to rethink India strategy”. I say, “they had better” !

The report quotes Vikram Uttam Singh, Head, PE advisory group of KPMG “The Subhiksha incident will make PE firms more cautious on how much of a free hand they allow to a promoter. Some PE funds are concerned that promoters have a wide range of authority in their companies and could look to establish structures that limit some of this authority”.

Here are my observations.

KPMG may have compulsions to take sides with PE firms as their survival depends on such clients. But why does it credit PE firms with so much of naiveté? ICICI Venture had an exposure of 33% in Subhiksha of which it off-loaded 10% to Azim Premji’s PE arm (Zash Investments) for Rs.230 crore – apparently without discussing with Subhiksha itself that was badly in need of cash.

If the same money (Rs.230 crore) was introduced directly into Subhiksha, (instead of buying out ICICI Ventures stake), the company could have been saved to an extent. But I-Ventures wanted to lighten its holding and thought otherwise.

While it’s ok for PE firms to cash out, they need not profess their ability to have long term relationship with their portfolio companies and the “strategic managerial edge” their presence in the Board offers to such companies. When that is the case, what was Ms.Renuka Ramnath (one of I-Ventures nominees on Subhiksha Board and CEO of I-Ventures) doing when she approved the proposal for massive scale up by Subhiksha? Now is she telling us she was not aware of it, even as I-Ventures had the rights to appoint majority of Subhiksha Board? Or does it mean she was too busy to attend Subhiksha Board meeting where such a critical decision was made? Or is she admitting I-Ventures had no monitoring mechanism over its portfolio companies? That’s a bit too much. If I were a LP investor in I-Ventures, I would have taken it to task and would proceed against them for dereliction of duty. A bit too naïve. She certainly can do with some education on sophisticated lying.

Just as in the case of Subhiksha, the first thing PE firms do when they sense trouble is (a) to quietly off-load their stake to an unsuspecting investor and (b) withdraw its nominees from the Board so that they need not defend lawsuits filed against them by unpaid creditors/ bankers / statutory authorities like EPFO in this case.

In simple terms, PE firms are pure fair-weather friends. All talk of strategic advisory services and expertise all are pure bunkum. They have none and they are here just to skim the profits. At the slightest sense of trouble, they chicken out – like the proverbial rats from the sinking ship.

Nothing wrong absolutely. Buy why not say it upfront? Why the façade of management expertise when you know you have none? Why not tell the portfolio investors - “Take the money and pay us back 10 x returns. In case if you goof up, you’re on your own” !

And lastly about KPMG and its ilk of PE advisory groups. How come all those transactions advised by these so-called whizkids yield a negative return soon after the transaction? Are they whizkids or half-baked, mother fucking scumbags that shamelessly face the media and talk ill of the companies they ran a due diligence on and arrived at a "fair market value"? If after all their “expert” due diligence, their projections go haywire, should they not re-examine their processes and find out what’s going wrong? How long should the investing community put up with such sobs that are ready to even chomp client carrots if there is the word "fee" at the other end?

Why would they? They have mastered the art of orifice-licking and carrot-chomping. That should keep them in good stead besides the standard disclaimers that insulate them :-)
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