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Warburg Takes 53.7% In Future Cap

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The Future group has taken the second step in its mission to pare its debt burden. Warburg Pincus LLC has agreed to buy a controlling stake in Future Capital Holdings for nearly $100 million, helping the US private equity firm to expand its presence in India's financial services sector.

Future Capital, which provides consumer and mortgage loans, said in a statement Warburg would initially buy a 53.7 per cent holding from group company Pantaloon Retail.

Future Group, whose main activity is running hypermarket chains such as Big Bazaar, has been looking to exit its non-core businesses. The transaction would help slash the group's debt by Rs 4300 crore.

Monday's deal at Rs 162 per share, or 18 per cent premium to Future's Friday's closing price, would cost Cloverdell Investment, an affiliate of Warburg, about Rs 600 crore. It would then make a public offer to the remaining shareholders.

Warburg would also inject Rs 100 crore of primary capital through a preferential allotment by Future Capital, the company said.

"It will bring down our debt to lower than Rs 2,000 crore," a Future Group source said.

Earlier, in April, the Aditya Birla Group had acquired a portion of Pantaloon Retail India's (PRIL) lifestyle business.  Aditya Birla Nuovo had acquired a minority stake by subscribing to Rs 800 crore worth of convertible debentures, which were to be converted into equity when the new entity is formed. ABN was to make an open offer to PRIL's shareholders and eventually have 50.1 per cent stake in the new firm. ABN has also paid another Rs 800 crore to service the debt of PRIL. For the Future Group, the deal had meant that Rs 1,600 crore out of the Rs 5,256-crore debt would be wiped off PRIL's balance sheet, giving Future Group chairman Kishore Biyani a breather.

With Rs 1,600 crore of debt being wiped out from the balance sheet of PRIL it was the first of the many steps to wipe off the debt in the Future Group.

Future Capital, which has Rs 4700 crore of assets, posted a 115 per cent jump in net profit to Rs 106 crore for the fiscal year ended March.

The company, with a market value of $158.4 million, said Vice-Chairman and Managing Director V. Vaidyanathan would continue to lead the operations.

Morgan Stanley was the lead financial advisor to Pantaloon while Enam Securities acted as the co-advisor to Future Group.

Warburg Pincus, which manages about $40 billion globally, has invested about $3 billion in India, including in private sector lender Kotak Mahindra Bank.

Private equity companies invested $1.8 billion in India in 2011, almost unchanged from $1.7 billion the year before, according to Thomson Reuters data. They have invested about $800 million so far this year, the data showed.

Shares in Future Capital, which have risen 11 per cent in since the start of the year, added more than 6 per cent by 0840 GMT in a Mumbai market that was down 0.5 per cent.