The offshore private equity (PE) fund of the Dutch financial services group Rabobank is in talks to buy a stake in Future Group’s rural retailing business, Aadhaar Retail. According to persons familiar with the discussions, India Agri Business Fund — the Mauritius-based investment vehicle of Rabo — may pick up a little over 25% stake in Aadhaar. However, they did not comment on the possible valuation.
Kishore Biyani-controlled Future Group is believed to be in touch with a string of PE funds to raise money for expanding its businesses. It feels that the government’s focus on developing rural markets could pave the way for more private equity investments in food and agri business.
India Agri Business is Rabo’s first agri-focused PE initiative in Asia, and the negotiations are being carried out by the group’s PE firm Rabo Equity Advisors. When contacted, Rajesh Srivastava, CMD of Rabo Equity Advisors, said: “We are interested in several businesses the group is in. However, that we are in discussion does not mean there is a deal on the table.” Future Group CEO Kishore Biyani declined to comment.
Local laws allow 100% foreign direct investment (FDI) in the wholesale cash-and-carry business and 51% FDI in single-brand retail ventures. Modern retailing businesses in India are predominantly located in cities. But, there’s a growing feeling that in the coming days, rural markets may grow at a faster pace than urban centres. Even today, businesses, such as FMCG, durables and automobiles are recording higher growth from rural markets, perceived to be untouched by the downturn.
The proposed deal could stoke PE interest in a sector that has drawn a lot of attention in recent years. Rabobank has a special focus on food and agri business worldwide. It has over 9 million customers in 39 countries, with assets of over e570 billion globally. Launched in 2008, India Agri Business Fund was sponsored by Rabobank, which committed 25% of the capital. Other investors in the fund include IFC Washington, the Dutch development bank FMO, the German institution DEG and some private investors. The British group CDC also committed $10 million. The fund will invest in companies operating in many subsectors of food and agri business, as well as in related infrastructure, such as cold chain logistics and warehousing.
In 2008, Future Group had bought out from Godrej 70% stake in Aadhaar, which provides agri-services in rural areas, besides retailing. The Godrej group currently holds 30% stake in Aadhaar Retail. The other key shareholder is A Mahendran, who is the FMCG director of Godrej Group. The Fund will target more than 38 sub-sectors of food and agri business, and will additionally aim to invest in agri-infrastructure projects like cold chain logistics, warehousing, dedicated ports and auction markets, among other things.
The Future Group plans to develop Aadhaar as a major supply chain of commodity and agri-produce, and even a distributor of the group’s financial products like consumer finance and insurance at a later point. There are about 100 Aadhaar outlets across Maharashtra, Gujarat, Punjab, Haryana, Andhra Pradesh, Tamil Nadu, Orissa and West Bengal. The outlets provide technical guidance, soil and water testing services and serve as retail outlets for top brands of leading companies. It also facilitates credit to farmers, besides offering them a platform to sell their produce.
Source: Economic Times