MUMBAI: Private equity heavyweight KKR is teaming up with diversified trading and commodities group SIMEC to invest Rs 900 crore to take over the cement business of debt-laden ABG Group through a complex, multi-tiered financial transaction. The much needed funding will help ABG’s founder promoter Rishi Agarwal to complete the last mile of his much delayed project in Gujarat, said multiple sources aware of the ongoing negotiations.
The first leg of the ‘special situations’ transaction — about to be concluded in the coming weeks — will see KKR fund SIMEC to pick up a 51% controlling stake in ABG Cements for Rs 525 crore. This will be followed by an additional Rs 385 crore of funding collateralised by Agarwal’s unencumbered (unpledged) shares in the company. The money will be used to finish the project, fund working capital and pay back overdue creditors. SIMEC has already made a part payment to show their commitment to the deal, added the sources mentioned above. KKR too has signed a term sheet with ABG’s management. A detailed due diligence process is currently ongoing.
Last year, SIMEC had agreed to buy into ABG’s cement business but the deal had not concluded. Now with KKR’s funding, it is expected to close soon. Spokespersons from ABG Cements and KKR declined to comment. Since 2010, ABG Cement has been planning a 5.8 million tonne cement unit. But due to significant cost and time overrun, only a 3.3 million tonne clinker unit at Kutch near the limestone reserves got completed. But Agarwal ran out of money to complete his grinding unit at Surat.Clinkers are intermediates which are mixed with slag to make cement. The slags — a by-product of blast furnace — is expected to come from Essar Steel making it the only such unit in western India. “Leveraged and marooned entrepreneurs need last mile financing. Once a company goes into the debt restructuring mechanism by lenders, there are lots of restrictions.
These special situations funding is quite popular in the developed markets and is gaining momentum in India too. As the economy and its core sectors like infrastructure and cement see an upswing in demand, investors like KKR will take more of such bolder bets like these,” said an investment banker in the know on condition of anonymity. “Typically 99% of these plants are complete and capital is required urgently for completion as well as to take care of high cost creditors. optionality of a claw back so that they can regain control of their business after paying back,” he added.
ABG Cements has a debt of around Rs 2,400 crore. With operational hubs in Dubai, Hong Kong and Singapore, SIMEC Group has a diversified commodities business spanning five continents covering shipping, industrial, mining, energy. It also owns utility assets like power plants and a cement grinding unit in Bahrain. SIMEC already sources about a million tonnes of clinker from ABG but analysts feel with an eye on the upcoming Qatar World Cup, it will require far larger supply of clinker going forward.
This will be the second transaction from the cash-strapped promoters of ABG Group in recent weeks. The group’s listed flagship ABG Shipyard — one of India’s largest private shipbuilding company — is also gearing up to sell a controlling stake to Beirut headquartered Privinvest Holding SAL, a leading manufacturer of naval and commercial vessels. This will be a much needed lifeline as ABG has been struggling to stay afloat even a year after its Rs 11,000-crore debt restructuring package was cleared under a corporate debt restructuring (CDR) proposal by a consortium of 22 lenders. Just last month, the company had missed payments to some banks which have classified the account as bad loan, putting pressure on the banking system to follow suit.
ET in its June 12th edition first reported on the impending change of control in ABG Shipyard.
“Agarwal is ceding control of both his businesses to emerge as a junior equity partner. That’s a rare move in India Inc. He is definitely stretched but so are many of his peers. This is positive move forward,” said a senior PSU lender who has significant exposure in the group.
Many however feel this will be KKR’s boldest bet so far. For starters, the plant is not yet ready. Secondly, ABG does not yet have any brand recall and that has to be built over time. Finally slag-based cement is a newer alternative to the Portland cement which is largely popular in India.
KKR is already backing Puneet Dalmia’s Dalmia Cement for the last five years. Dalmia’s total manufacturing capacity has reached 9 million tonnes per annum. It also a 45.4% stake in OCL India (5.3 million tonnes) along with the upcoming greenfield cement projects across the country. But it is largely focussed in Eastern India. The ABG transaction is independent of that.
Source – Economic Times