Warburg Pincus is part-exiting from its three-year-old investment in the maiden public offer of the coal beneficiation and power generation firm ACB (India). ACB (formerly known as Aryan Coal Benefications Pvt Ltd) is looking to raise Rs 575 crore ($128 million) through a fresh issue of shares, besides an offer for sale by a group of shareholders, led by Warburg Pincus among other promoter group individuals, in one of the biggest proposed IPO in the past few months.

IDFC Capital, Edelweiss Capital, JP Morgan India and Macquarie Capital Advisers (India) are the global co-ordinators for the issue while Axis Bank, ICICI Securities and Yes Bank are the book running lead managers to the issue.

Warburg Pincus has invested over Rs 320 crore through a mix of preferential allotment, besides subscription to rights issue. It owns around 21.9 per cent stake in ACB and is selling a little over a third of its stake as part of offer for sale. Niten Malhan represents the private equity firm on the board of ACB.

The valuation that the company is seeking and the returns that Warburg Pincus can generate will become clear when the price band of the issue is frozen. But if the share price in the last transaction within the promoter group last month is taken as a benchmark, the private equity firm may encash at least Rs 115 crore ($25 million) in the IPO.

ACB is the largest coal beneficiation company in India with operations spread over 15 locations in the major coal-bearing states like Chhattisgarh, Orissa, Maharashtra and Andhra Pradesh. The company also owns the single largest coal beneficiation plant in the country, located at Dipka, Chhattisgarh. In addition, it offers logistics services to manage supply chain and delivery of raw coal from mines to its beneficiation plants and customers sites.

The firm’s beneficiation plants generate coal rejects as a by-product and ACB started converting that into power around four years ago by constructing and commissioning a 30 MW thermal power plant in Chhattisgarh, fuelled by reprocessed coal rejects. Plus, it has a wind power facility with a designed capacity of 15 MW in Maharashtra.

The company also sells coal rejects, reprocessed coal rejects, coal rejects blended with raw coal and coal (both processed and unprocessed) purchased through e-auctions, conducted by public sector behemoth Coal India Ltd and its subsidiaries.

ACB’s future strategy is also to increase the percentage of total income generated from the power operations. It has seven power projects with an aggregate designed capacity of 3,106 MW at various stages of construction, implementation and development. Out of these, two power projects with an aggregate designed capacity of 320 MW are in the construction phase and the management expects to commission the same by September, 2011.

For the nine months ended December, 2010, ACB had a total income of Rs 935.7 crore (over half of which was derived from sale of coal), with EBITDA of Rs 167.08 crore ($37.3 million) and net profit of Rs 117 crore.

Warburg Pincus In Action – 2011

The proposed part-exit from ACB follows Warburg Pincus’s final exit from its five-year-old investment in gem & jewellery exporter Vaibhav Gems early this year, with an estimated 92.5 per cent haircut, making it one of the biggest loss-making private equity exits in India. The PE firm sold its entire 28 per cent stake, apparently to a group of high networth investors, for Rs 18.4 crore or just around $4 million against the purchase cost of Rs 247 crore, according to VCCircle estimates.

The private equity firm made a large investment of around $150 million last month in a similar space, picking an undisclosed stake in Diligent Power, Dainik Bhaskar Group’s power vertical. Diligent Power, through its subsidiaries, is in the process of creating power projects cumulating to 6,400 MW, including a 1,200 MW thermal power plant in Chhattisgarh and a 1,320 MW super critical thermal power plant in Madhya Pradesh.

Two months ago, Warburg Pincus also invested an undisclosed sum in Mumbai-based logistics company Continental Warehousing Corp (Nhava Sheva) Ltd which offers warehouse management, inventory management, manpower, accounting, MIS, transportation and distribution services.

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