Valuations form the focus area currently
Baring Private Equity Asia is in exclusive talks with Hong Kong-based PCCW to sell a majority stake in Hexaware Technologies, two investment bankers with direct knowledge of the developments told FE. The talks are currently understood to be focused around valuations with Baring seeking a minimum 15% premium over the IT player’s current market price.
Simultaneously, Baring Asia is understood to be planning a $400-million overseas bond issue to refinance bank borrowings it raised to acquire Hexaware. “The idea is to increase the IRR (internal rate of return) on the investment since the bonds will be repaid only on expiry whereas the principal for bank loans need to paid out regularly,” one investment banker explained.
He added that Baring Asia had initially invested $330 million as equity which had been replaced with debt from Standard Chartered, Deutsche Bank, Credit Agricole and Investec to the tune of $400 million.
“Baring’s current equity in Hexaware is around $100 million and at the present valuation would ensure a doubling of returns on its investments,” the banker said. Hexaware’s revenues have risen from R2,285 crore in FY13 to R3,123 crore in FY15 and it has declared a total dividend of R878 crore in this period. Hexaware’s market cap doubled from R3,829 crore in August 2013 to R6,761 crore currently.
Baring Asia had picked up a 42% stake for $465 million in a leveraged buyout at R126 per share in August 2013 and subsequently increased its holding to 71%. In January Baring Asia appointed Rothschild & Co to look for potential buyers for the software firm.
Promoted by Richard Li, younger son of Hong Kong-based billionaire Li Ka-shing, PCCW has interests in telecommunications, media, IT solutions and property development.
It is currently led by former Infosys president BG Srinivas who took over as group managing director of PCCW in 2014 and has been actively looking for acquisitions in India.
“PCCW has been looking for an acquisition in the Indian IT space and was keen to acquire Mphasis but the deal did not go through,” said a senior investment banker, who did not wish to be named.
Analysts point out that PCCW, which has a large telecom practice, especially around data-centre solutions, would be keen to leverage Hexaware’s customer base and there could be significant cross-selling opportunities.
“Globally, the telecom segment is not growing fast for IT companies and both PCCW and Hexaware could benefit from each other as it will help them reach newer clients,” said Bimal Raj, partner, Singhi Advisors.