After Indian investors, the US sub-prime crisis now hits Indian entrepreneurs. Raghvendra Rao, the promoter of Orchid Chemicals & Pharmaceuticals Ltd, who made an attempt to enhance his ownership by borrowing from the market by pledging Orchid's shares, could now end up losing control of the company he founded to Solrex Pharmaceuticals - a Ranbaxy group company.
Talking to Hindustan Times , Rao said that he had borrowed Rs 70 crore from Religare Securities - a group company of Ranbaxy promoters - and Indiabulls in the first quarter of 2007 to part finance his creeping acquisition and enhance his holding in his own company. The promoters’ holding had subsequently increased to 22.8 per cent from 17.9 per cent.
Solrex, which an insider speaking on the condition of anonymity said is an "associate company" of Ranbaxy, has now cornered 12.9 per cent stake in Orchid from the market and is all set to mount a hostile acquisition bid.
It all began last month, when US investment bank and brokerage firm Bear Stearns started selling its stocks in Indian companies to tide over subprime problems in its home country. Orchid was among the liquid stocks in Bear Stearns’ India portfolio and it sold over 1 million shares of the company sending them crashing to around Rs 140-150 per share in March.
“On March 17, the two broking-cum-financing companies - Indiabulls and Religare - triggered the margin call and tried to reach me," Rao said. "I was out of the country and as a result they sold 5.2 million shares of Orchid Chemicals. This in turn brought down the promoters holding to less14.5 per cent."
Solrex, with 12.9 per cent stake till Tuesday, is now within kissing distance of triggering an open offer to take control of the company.
Ranbaxy managing director Malavinder Mohan Singh was not immediately available for comments.
Rao, however, is not willing to relinquish control and is preparing to fight back along with his friends. “We are in discussions with institutional investors such as Schroders Plc of London, who have assured me of supporting in case of a hostile bid,” Rao said.
“Although the promoters’ holding is around 17 per cent, we are confident to protect the interest of all the stakeholders in the company.”
Sources said that existing promoters are in talks to the some leading private equity firms to make private placement along with the promoters.
“Since the hostile bid has not been mounted as of now, they are in discussion with some of the funds and most likely to place shares," a leading investment banker close to the deal said on the condition of anonymity. "The placement would be over 10 per cent of the enhanced paid up capital so that promoters along with such private equity firms can have more than 26 per cent stake in the company. This will work as a deterrent for any hostile bid."