Goldman Sachs takes 9.4% in Max India for $115 mn

The private equity arm of global investment bank Goldman Sachs is poised to invest $115 million (about Rs 540 crore) in Max India which will be used to fund the Analjit Singh-owned company's expanding insurance, healthcare and specialty plastics businesses.

"Max India will issue fully and compulsorily convertible debentures (FCDs) of the face value of Rs 867 each to Goldman Sachs Equity Partners...for an aggregate consideration of…$115 million, on preferential basis representing approximately 9.4 per cent of the post-issue equity share capital of the company," Max India said in a filing to stock exchanges after the board approved the investment.

At this rate, Max India gets a total valuation of $1,223 million (about Rs 5,743 crore).

The investment will be from the $20.3 billion GS Capital Partners VI fund formed in 2007 to invest in a broad range of industries globally.

Promoter Singh will himself pump in money to retain his shareholding at the current level of about 34 per cent. "I am trying to indicate my strong belief in the company. I don't want to dilute my stake. I will be trying to increase my shareholding in one year," Singh told Business Standard.

Goldman Sachs will get a seat on the board, though it will not have any affirmative rights. "They will only have information rights," said Max India's director, corporate development, Mohit Talwar.

The debentures, which carry a coupon rate of 12 per cent a year, will have to be converted within 15 months from the date of allotment into four equity shares of Rs 2 each at a premium of Rs 214.75 per share.

The Max India stock closed at Rs 224.05 at the Bombay Stock Exchange on Friday.

Singh will be issued 2 million warrants of the face value of Rs 867 each for Rs 173.4 crore, representing about 3 per cent of the post-issue share capital of the company on conversion. Each warrant will be converted into 4 equity shares of Rs 2 each at a premium of Rs 214.75 per share within 18 months.

About half of this money - Rs 87 crore (Rs 870 million) - will be paid upfront by Singh, though the stipulated minimum upfront payment required is just 25 per cent.

Max India already has a treasury corpus of Rs 330 crore (Rs 3.3 billion). The investments by Goldman Sachs and Analjit Singh - expected to be in by February - would mean that the company would have access to about Rs 1,000 crore (Rs 10 billion), which would meet its funding requirement for the next two years.

"This funding should see us through to the latter part of 2011," said Talwar.

A large chunk of this money - Rs 520 crore (Rs 5.2 billion) - would be pumped into the life insurance firm Max New York life. About Rs 200 crore (Rs 2 billion) has been earmarked for the new health insurance business, while Rs 150 crore (Rs 1.5 billion) is for the healthcare business.

The company did look at other funding options, including a rights issue and a qualified institutional placement, but opted for a private equity investor since it wanted a long-term investor which would also add value.

"Goldman Sachs has deep pockets…and exposure to the insurance business... through its investments in China," said Talwar, explaining why Max India chose Goldman Sachs.

An extraordinary general meeting to seek shareholders' nod for these investments has been scheduled for January 22 next year.