Bay Capital Investments (formerly Indus Hospitality Fund)-backed Sterling Holiday Resorts (India) Ltd is looking to raise Rs 120 crore ($27 million) through a preferential allotment of shares and equity convertible warrants to a group of investors including a few marquee domestic individual investors, investment funds and its own promoter.
Among those who are to subscribe to shares/warrants include names like Rakesh Jhunjhunwala and Radhakishan Damani.
The company’s scrip crashed 9.28 per cent on Wednesday, July 20, after it disclosed its plans to raise the cash. This could have happened due to the quantum of equity dilution as also due to the fact that the scrip had shot up almost 60 per cent within a week.
The preferential allotment will be at a price of Rs 75 per share, as against the last traded price of Rs 111.5 per share. This means equity dilution of as much as 32.5 per cent, post- conversion of warrants.
Earlier this year, the company said that it was looking to raise up to Rs 100 crore and it seems that the target has been pushed up a bit. The funds being raised is to be used to strengthen the ?nancial position and the net worth, besides augmenting long-term resources.
Sterling is into vacation ownership business and has a network of 14 resorts in 12 holiday destinations across India. The company, which closed the last financial year (in March, 2011) with revenue of Rs 39.5 crore, has been into losses for the past five years or more.
It has been looking to increase destination footprint by developing new resorts and expanding inventory in existing resorts. However, this will require fresh cash.
The company has just hired Ramesh Ramanathan as its new managing director. Ramanathan, who was earlier with RPG Group as president of FoodWorld Supermarkets and managing director of Health & Glow, was heading Mahindra Holidays and Resorts India Ltd for the last seven years. Incidentally, Ramanathan was part of the Sterling Holiday Resorts in early 1990s.
In July, 2009, Indus Hospitality Fund had acquired over 15 per cent stake in Sterling through preferential allotment for around Rs 28 crore. This had triggered an open offer for another 20 per cent as per the Indian takeover code. The open offer, which came out in November, 2010, did not find many takers and the acquirers including India Discovery Fund (as persons acting in concert) held 19.37 per cent stake post the offer.
Bay Capital, together with India Discovery Fund, had raised its stake and as of March 31, 2011, held 22.8 per cent in the company. While Bay Capital is also among the entities subscribing to the preferential allotment, its total holding will shrink a bit.
Sterling Holiday operates in a field where its peers include much larger firms such as Mahindra Holidays & Resorts and Country Club. Hospitality is a lucrative business to capture India’s domestic consumption story and it has been attracting investments from both strategic and financial investors.