S Kumars planning to sell Reid & Taylor

 MUMBAI: With Big B AmitabhBachchan and James Bond star Pierce Brosnan as brand ambassadors, it has been 'bonding with the best' for years. But now Reid & Taylor, the marquee-suiting brand is up for sale in India along with its premium portfolio of fabric and apparels.
Fifteen years after launching it in India, the cash strapped promoters of
S Kumars NationwideBSE 4.09 % Limited (SKNL) - led by Nitin Kasliwal - is planning to sell a controlling stake in the company and deleverage the balance sheet, said multiple sources aware of the development. This move comes after several unsuccessful attempts to list the Reid & Taylor India business through a Rs 1000 crore IPO.

Reid and Taylor India is an unlisted subsidiary of SKNL. In 2008, an affiliate of the sovereign wealth fund Government of Singapore Investment Corporation (GIC) - GIC Special Investment - picked up a 25.6% stake in the company for Rs 900 crore through a mix of fresh shares and convertible warrants.

According to one of sources mentioned above, a mandate has been given out already and a formal process is expected to get launched in the coming weeks.

"With a majority stake offer, it will be a change of control transaction. This will also give an opportunity to GIC to exit the company. Both buyout funds and strategic investors will be approached. Already preliminary feelers have already been sent to a few local peers as well, although their interest levels so far have been muted largely because of the steep valuations," added another official directly involved in the sell off process on condition of anonymity as the matter is still in private domain.

The promoters are believed to be asking for a significant control premium, valuing the company at Rs 3500 crore - Rs 4000 crore. That is 2.2 times the FY12 sales of Rs 1539 crore and an EV/EBITDA of 7. Reid & Taylor ended FY'12 with earnings before interest, tax, depreciation and amortization (EBITDA) of Rs 536 crore and a profit of Rs 296 crore.

Interestingly, even GIC had valued the company at Rs 3540 crore when it came on board. It's even starker when compared to the market cap of parent SKNL that currently is at Rs 254 crore, down 74% from Rs 989 crore a year ago. On Friday, the stock closed at Rs 8.5/share.

If the deal gets through successfully, the money will be used be used to significantly bring down the company's leverage. As per SKNL's annual report for 2011-12, the consolidated debt stood at Rs 4372 crore out of which Reid and Taylor alone contributed Rs 1103 crore.

When contacted, Nitin Kasliwal, chairman & managing director, SKNL and MD, Reid & Taylor told ET, " We are exploring various options to raise equity money. But I cannot make any specific comments on the quantum and the entity that will be used as there is still no concrete plan." Asked specifically on plans to divest a majority stake in Reid & Taylor, Kasliwal added, "As a matter of policy, I will not make any comments on market speculation. "

An official close to the company's top management said there has also been a recent proposal to ask GIC to hike its stake in the company. But that is unlikely to go through as being a sovereign fund, it rarely takes controlling positions in its investee companies.

Mails sent to GIC's spokespersons did not generate a response till the time of going to press.

Apart from the overall macro challenges - including rising raw material costs and a fluctuating currency -- that has been plaguing the local
textile industry, SKumars has been suffering from its own set of problems which has got compounded by the high debt piled up in its US arm HMX Acquisition Corp.

Four years after acquiring the company and its two major brands from the US Bankruptcy Court, HMX has again filed for voluntary capital restructuring under Chapter 11 last October. Its net loss during the quarter ended 31 December stood at Rs.10.35 crore, largely on account on sluggish market conditions and tight liquidity, as per a filing by SKNL on BSE. Analysts reckon, that both SKNL and even Reid & Taylor's debt to equity ratio is much higher than several of its peers. The company, said sources, is even planning to restructure its debt under the CDR mechanism.