Indian dairy company Parag Milk Foods Ltd said Monday it will raise Rs 205 crore ($28 million) from International Finance Corporation and consumer-centric venture capital firm Sixth Sense Ventures.
IFC, the World Bank’s private-sector investment arm, plans to invest Rs 75 crore through a preferential subscription of equity shares and Rs 80 crore via Foreign Currency Convertible Bonds (FCCBs).
Sixth Sense will make an equity investment of Rs 50 crore. In addition, Parag Milk’s controlling shareholders will invest Rs 111 crore via convertible warrants to maintain their stake in the company at 46%.
In total, the company is raising Rs 316 crore. The fundraising is subject to shareholder approval and regulatory clearances.
The announcement comes a few months after IFC in December decided to invest Rs 150 crore in Parag Milk through non-convertible debentures. That debt investment was part of IFC’s Covid-19 facility to support companies affected by the coronavirus pandemic.
Parag Milk said IFC and Sixth Sense will buy shares at Rs 111 apiece, almost at the prevailing market price. The FCCBs to be allotted to IFC have a five-year maturity period and would be convertible into equity shares at Rs 145 apiece.
According to estimates by The Capital Quest, IFC will pick up a 6.4% stake in Parag Milk while Sixth Sense will buy 4.2%. If IFC converts all FCCBs into shares, its equity stake would increase to 10.8% while that of the VC firm would dilute to 4%.
The FCCBs carry a coupon rate of 2.5% a year until the three-month volume weighted average price of Parag Milk’s share remains below Rs 175 apiece and 1.5% until the share price is less than Rs 200 apiece. The FCCBs won’t carry a coupon if the average share price is above Rs 200.
Parag Milk chairman Devendra Shah said the company will use the money raised from preferential shares and warrants to reduce short-term debt and enhance working capital. It will use the FCCB proceeds to meet its capex requirements over the next two years.
“This would provide enough firepower to bolster the balance sheet and propel the company for future growth,” Shah said.
Parag Milk was set up in 1992 and is one of the largest private dairy companies in India. It has manufacturing facilities in Maharashtra, Andhra Pradesh, and Haryana. It sells dairy products under ‘Gowardhan’, ‘Go’ and ‘Pride of Cows’ brands.