The Hindu Business Line : ICICI Venture fund invests Rs 20 cr in Arch Commerz

ICICI Venture has announced that it has concluded its first mezzanine investment from its Rs 750-crore India Advantage Fund by investing Rs 19.7 crore in Arch Commerz, a pharmaceutical intermediates company that was recently reverse-merged into Merven Drug Products Ltd, a Hyderabad ailing pharma company.

In a press release here, ICICI Venture said Brescon Corporate Advisors Ltd were the advisors to Arch Commerz for this transaction.

On the mezzanine-financing mode, the ICICI Venture Managing Director and Chief Executive Officer, Ms Renuka Ramnath, said: "It is a hybrid product targeted to provide growth and acquisition capital not ordinarily available to midsize companies. It is typically structured as subordinated loan with an opportunity to participate in the upside of a company, while bearing the equity risk."

Arch Commerz's steady growth over the past three years coupled with strong product pipeline made it an ideal candidate for mezzanine funding, she said.

ICICI Venture's funds infusion into Arch Commerz is structured as a mix of subordinated debentures and warrants. The structure is closely linked to the overall returns to the performance of the company.

Earlier, the Swiss Technology Venture Capital Fund, a private equity fund sponsored by the Swiss Federal Government, has also invested Rs 9 crore in Arch Commerz during October last to strengthen the latter's equity base, the ICICI Venture release said.

According to Ms Ramnath, mezzanine funding presents a unique funding opportunity for companies that were adequately leveraged and were seeking financing alternatives that do not result in significant dilution for existing shareholders.

Commenting on the development, the Arch Commerz Chief Executive Officer and key promoter, Mr Ajit Kamath, said the investments of ICICI Venture and Swiss Technology would help the company augment its production capacity, taking the company to a turnover of Rs 150 crore by 2005.

"The company proposes to broad base its product range by entering into therapeutic segments other than antibiotics and manufacturing bulk drugs, under exclusivity agreements with market leaders in non-intermediate segments," Mr Kamath said.

Arch Commerz expects to post a turnover of Rs 90 crore during the current fiscal. Currently, the company is a leading supplier of side chains for Isoxazole penicillins in the antibiotic range. Having recently acquired Merven Drug Products, Arch Commerz is close to finalising the acquisition of another company in the cardiovascular intermediates segment, the ICICI Venture release said.

Further, ICICI Venture said it proposes to set aside a significant portion of its India Advantage Fund corpus to focus on mezzanine investments. The fund is the country's largest private equity fund with marked focus on expansions, acquisitions and restructuring through equity and mezzanine structures and on real estate, the release said.

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