Devonshire Capital
Saturday, January 27th 2001

Business Line Financial Daily from THE HINDU group of publications

Times Guaranty - Looking out for strategic domestic investor

Ashok Jainani

MUMBAI, Jan. 26

DEVONSHIRE Capital Mauritius Ltd is getting deeper into the regulatory quagmire of norms on foreign ownership of non-banking finance companies.

The foreign investment promotion board (FIPB) has granted permission to Devonshire Capital to go ahead with the open offer to acquire additional 20 per cent equity of Times Guaranty Ltd (TGL) from the general public in addition to the 74.92 per cent it has acquired in a negotiated deal from Bennett Coleman & Co, the promoters of TGL.

The FIPB permission came with one caveat that Devonshire Capital must bring down its equity in TGL to 51 per cent within six months of the closure of the open offer, which closed on January 10.

Another condition for the permission is that Devonshire Capital must not redeem the preference shares of Rs 6 crore it would acquire as a result of the takeover.

The preference shares must be converted into equity which, in turn, would again lead to an increase in Devonshire Capital's stake in TGL.

The time limit for this conversion is March 2002. According to FIPB, Devonshire Capital cannot redeem preference shares as it would lead to outgo of foreign exchange.

In effect, Devonshire Capital, which has acquired 74.92 per cent stake from the promoters and about 87,000 shares from the public, has to divest its stake to bring it down to 51 per cent by June 2001. Its stake will again rise as a result of the conversion of preference shares, which again needs to be brought down. To wriggle out of the conditions and caveats of the takeover regulations of the Securities and Exchange Board of India (SEBI) and FIPB, it is looking for a strategic investor.

The Devonshire Capital Managing Director, Mr Kush Verma, told Business Line that it was looking for a strategic local investor who could be drawn from among the employees, clients in TGL's portfolio or another investor to satisfy the seemingly conflicting guidelines.

The FIPB norms prescribe a ceiling on foreign investments in non-banking financial companies (NBFCs) up to a maximum of 74 per cent if foreign company brings in a sum of over $50 million. ``In this case, Devonshire Capital is bringing only about $2.5 million. Hence, it has been given permission to hold up to 51 per cent in TGL,'' Mr Verma said.

In order to fulfil SEBI's takeover regulations, Devonshire Capital made an open offer to buy 35.97 lakh shares, or 20 per cent equity, from the public at a price of Rs 7 per share.

Devonshire Capital, part of Hong Kong-based Devonshire Capital Management group, is awaiting permission from the Reserve Bank of India to bring in funds to complete the acquisition of 1.34 crore shares, or 74.92 per cent of TGL equity, at a price of Rs 4 per share aggregating Rs 5.39 crore. It has received only about 87,000 shares in the public offer.

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