Firstsource deal holds exit opportunity for investors

The acquisition of Firstsource Solutions is set to provide a good exit opportunity to its investors. ICICI Bank, one of these, has been trying to reduce its stake for long, as it has to bring it below five per cent on directives of the US Federal Reserve. ICICI Bank has a full branch in New York.

In 2010, ICICI Bank's attempt to sell its stake to private equity player KKR had hit a roadblock. The reason behind the failure to sell has been the huge debt the company has due to funds raised through foreign currency convertible bonds (FCCBs).

In 2007, it had raised $275 million by issuing FCCBs for the acquisition of the US-based MedAssist for $330 million.

To be able to repay bondholders on time, the company sold some of its assets and raised funds. In 2010, Firstsource sold Pipal Research - a knowledge process outsourcing firm - to CRISIL for $12.75 million.

The company had also planned to sell MedAssist but, finally, did not go ahead. It is one of the acquisitions that has done well.

Over the past few months, the company has been buying back FCCBs whenever possible. Firstsource has FCCBs worth $237 million maturing in December 2012. At present, the company has managed to raise funds partly to repay the bondholders.

According to a CRISIL note, the FCCBs will be redeemed partly through cash and partly through the issue of new bonds for up to $120 million. As of June 30, the company had a cash reserve of Rs 750 crore ($135 million). It does have a shortfall of around $85 million, for which the company has been in talks with bondholders.

The front runner for the Firstsource acquisition, the RP-Sanjiv Goenka group, has revenues of Rs 10,200 crore (Rs 102 bllion). This year, the figure is expected to be in the vicinity of Rs 12,500 crore (Rs 105 billion).

Through Firstsource, Sanjiv Goenka will have a presence in BPO verticals such as telecom, media, health care and banking and financial services. In at least two of the business segments - media and health care - he has a presence through Open magazine and the Kolkata-based Woodland Nursing Home.

Despite being the son of a takeover tycoon, Goenka has been largely conservative in his growth plans; even though he was only 28 when he took over power utility CESC. Over the past year, however, Goenka has shown some inclination for big-ticket acquisitions.