L Capital pulls out of deal to buy India’s Lilliput Kidswear
L Capital, the private equity arm of luxury group LVMH, has pulled out of the running to buy Lilliput Kidswear, according to the Indian clothing manufacturer's founder. The deal was expected to value the company at INR11 billion ($197 million), with L Capital taking an 85-90% stake, but the private equity firm was only interested in Lilliput’s retail assets and didn’t want the export and manufacturing divisions.
"The deal is off. There were differences over valuation," Sanjeev Narula, founder of Lilliput, told The Business Standard. Narula, who owns 55% of the company, added that L Capital also decided against appointing him chairman and refused to include a claw-back clause that would have allowed him to increase his stake once the business' fortunes improved.
The breakdown in negotiations means that Bain Capital and TPG Capital are no nearer securing an exit from their investments in Lilliput. The private equity firms committed $60 million and $26 million, respectively, in 2010, but relations with Narula soured last year following a tip-off about irregularities in Lilliput's financial statements. Narula responded by obtaining a court injunction that prevented the Bain and TPG from selling their stakes or discussing the matter publicly.
Last month, the private equity firms filed an application with Delhi High Court, requesting that an interim report on Lilliput by a court-appointed independent auditor be made public. They also called for a local commissioner to take possession of the company's account book and other records. The matter has been referred to an arbitration hearing.
Meanwhile, Lilliput is trying to find solutions to its debt burden. In recent years, the company massively increased its debt exposure in order to finance expansion plans. It added 600,000 square feet of retail space in two years, equal to the total amount added over the previous eight years. Lilliput is thought to owe more than INR7 billion.
Last week, Coralbay, the company's advisor, presented a debt-restructuring proposal seeking concessions from creditors, including a moratorium on repayments, a reduction in interest rates and the conversion of working capital into term loans. Lilliput says it has already sacked 10,000 employees, reduced salaries by 10-40% and closed 25 retail outlets and four manufacturing plants.
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