MUMBAI: Private equity fund Barings Private Equity Asia will purchase a 14% stake in cement-maker Lafarge India for $256 million ( 1,400 crore) enabling the local company to fund its 6,000-crore expansion. The stake buy move comes when its French parentLafarge SA is preoccupied with a massive debt restructuring programme. The deal values the firm at $1.86 billion ( 10,000 crore.)
Barings pipped rival bulge-bracket private equity funds like Temasek, Carlyle and Advent by putting a 10% higher bid offering $230 a tonne, a new benchmark for the sector.
"India's infrastructure sector will witness a revival in the next 2-3 years. Cement players will have a good time as spending on housing and infrastructure will improve,'' Sonal Udasi, research head, IDBI. ''Hence, Barings can look at exiting at a premium in the next three-five years.''
PE fund KKR-backed Dalmia Cements had recently bought out Adhunik Cement for $130 per tonne. ET had reported in its edition of April 30, 2013 about Barings Asia has emerged as the frontrunner the race to purchase stake in Lafarge India.
"Barings had to pay a premium given the size and pedigree of Lafarge. The deal would have been done with several conditions attached given the kind of premium offered by Bearings," said an investment banker.
Lafarge has assured a 15% Internal Rate of Return and had also agreed to buy back the shares of its Indian arm from Baring within five years. Lafarge has the capacity to produce about 8 million tonnes a year, making it among the top 10 cement players in the country. The company wants to double the size of its upcoming 2.5-million-tonne cement plant in Rajasthan being built at a cost of about 2,500 crore.
But, the global parent is finding it difficult to fund the Indian subsidiary, given that it is grappling with a debt overhang and declining profits due to higher restructuring charges. Private equity firms are showing a greater interest in the cement sector as Indian companies build more ports, power plants and bridges.
Barings rival KKR is consolidating its cement investments under Dalmia Cement in which it owns a 16% stake from 2010. Dalmia acquired Adhunik Cement and Calcom Cement. Lafarge entered the Indian market in 1999 with the acquisition of Tata Steel's cement operations and later acquired Raymond Cement in 2001.
India is an important market for Lafarge which has been present in this fast evolving market for the past 15 years. The group will continue to grow in India and provide innovative products and solutions to accompany India's urbanisation needs, particularly in the housing and infrastructure, the company said in a report.