The MP Birla group, whose flagship company Birla Corp last week announced plans to acquire Anil Ambani’s Reliance Cement Company for Rs 4,800 crore, is exploring options of raising funds for the transaction through a series of intra-group deals involving equity support from a cash-rich unlisted subsidiary and listed firms.
According to people familiar with the transaction, Kolkata-based MP Birla group will rope in the profitable Hindustan Gums and Chemicals and listed company Universal Cables, to provide promoters’ contribution for the acquisition. Of the total enterprise value of Rs 4,800 crore, Birla Corp will acquire Rs 2,400 crore of debt. The company will need to fund the remaining Rs 2,400 crore.
“The option being considered is raising equity through a consortium of investors, which in this case can be through Hindustan Gum, Universal Cables and Birla Corp itself. The fund infusion could be routed through inter-corporate deposits into the group’s investment companies, which will then invest in the new cement company,” one person with knowledge of the development said.
Hindustan Gum is one of the largest producers of guar, a key ingredient for pharmaceutical and consumer goods industries. Being unlisted, its financials are not known, but sources said annual profits could be around Rs 600-700 crore. Universal Cables is one of the largest manufacturer of power cables and last year clocked sales of Rs 694 crore on a loss of Rs 34.71 crore. Its market cap is Rs 228 crore.
The consortium of investors will do away with the possibility of making the new company a subsidiary, as that would entail a different set of regulations.
“The consortium of lenders will allow banks to distribute the burden of lending so that prudential norm limits are maintained amid the current scrutiny of fresh loans by banks to the corporate sector,” the person added. The group may look at a 50:50 equity-debt funding.
Birla Corp did not respond to queries emailed last week. Elaborating on the acquisition, Birla Corp chairman Harsh Lodha said: “The deal will help Birla Corp in strengthening its presence in the cement sector.”
At about 10 million tonnes of current capacity, Birla Corp is acquiring 50% of its size – Reliance Cement has a capacity of 5 million tonnes. “They (Birla Corp) are getting an existing functional unit, which will benefit them in the long-term,” said Murtuza Arsiwala of Kotak Institutional Securities.
Birla Corp has a market capitalisation of Rs 2,942 crore, and cash and investments of Rs 1,760 crore as on March 31, 2015. Its current debt is around Rs 1,300 crore.