Question

What made the Khemka family decide to enter the beer market in Russia in 1992. How did they find themselves in the situation they were in at the time of the case? What could they have done differently? Why beer? The Khemkas don’t drink beer, don’t know how to make beer, don’t really know the beer market anywhere in the world. And why beer in Russia? Don’t Russians drink vodka...? So how did they do it? How was the growth financed? What do we know about the private placements? The next time the Khemka family raised equity was through a rights issue in September of 1994. What exactly is a rights issue? Is this a common way of issuing equity? How about GDRs? Is this really high finance or a fairly standard way of raising capital? Why did Sun Brewing issue GDRs? What about the IPO? Does December 1995 sound like a good time to take SUN Brewing public? Why did they do it, then? How did the private placement investors do as a result? Except for the 60% loan, all the sources of outside capital the Khemkas tapped into were equity. Why didn’t they use more debt? Could they? Should they? What was the problem with the situation in 1999? What were SUN Brewing’s financing needs in March 1999? How much was the company worth? What risks were associated with investing in a Russian beer company in 1999? Suppose you are Shiv Khemka... you need $38 million immediately to keep the company afloat, plus $76 more if you want to keep it running for the next few years. What were the pros and cons of the different alternatives (listed below) available to the Khemka family in 1999? Stay the course (go it alone) Bring in a strategic (joint venture) partner Bringing in a financial partner Sell off completely

Answer 1

The Khemka group of India, who are the founders, managers, and proprietors of the Russian based company- SUN Brewing Ltd., which faces a significant decision to make in 1998. The family chose the beer company as it was appealing and looking at the Russian market in the 1960s, the brewing capacity was located in each region and competition was limited. The market was vast with many opportunities and at that time, there were only two cities who imported foreign beer.

The Russian financial crisis which included the massive Ruble’s devaluation and the country defaulting on public and private debt. Also, the stock price of SUN Brewing which was open in the Luxembourg Stock Exchange had rejected by almost over 90%. A few weeks earlier the company had planned a $200 million to $400 million equity and debt offering to the New York Stock Exchange (NYSE) to invest in major other fields when confronted with the intense competition from the other beer companies in the Russian market.

However, the devaluation of the currency along with the economic crisis resulted in the cancellation from the NYSE and also a $400 million bridge loan which was to be paid back. Lastly, the company is left to discuss two primary options: