Baring Private Equity Asia to invest $260M in Lafarge India

In what will be the largest private equity investment in India’s cement sector, Baring Private Equity Asia is picking up 14 per cent stake in the India unit of the French cement maker Lafarge SA.

Lafarge said it had signed an agreement to raise €200 million ($260 million) through the capital increase subscribed by Baring Private Equity Asia for 14 per cent minority stake in its Indian subsidiary, Lafarge India Pvt Ltd.

The investment will fund Lafarge’s growth plans in India across its product lines like cement, aggregates and concrete.

According to VCCircle estimates, the deal will value the India arm at €1.43 billion or $1.86 billion. The transaction is subject to the approval of local regulatory authorities.

The deal will be one of the rare instances where a multi-national firm has divested a minority stake in India operations to a private equity firm to fund its growth.

Baring closes largest India deal

This will be the largest India investment till date for Baring, one of the largest private equity firms in Asia with more than $5 billion under management.

The deal comes at a time when Baring Asia is looking to expand its portfolio in the country. It has recently beefed up its senior team and is looking to invest in larger deals, upwards of $100 million. The PE firm is also looking to write cheques up to $400 million, compared to the $20-100 million deals that the firm closed earlier.

Baring Asia’s India investments include infrastructure development company Rithwik Projects, brokerage firm Sharekhan and architecture consultancy firm RSP Design Consultants. Some of its recent investments include engineering company Coastal Projects and a PIPE investment in the private sector lender South Indian Bank.

Lafarge strong in Eastern India

Lafarge, one of the world’s largest cement manufacturers, has been looking to cut its €12.2 billion debt, caused by acquiring the Middle Eastern cement maker Orascom in 2007. The French multi-national has been shedding non-core assets to bring the focus on its key cement and concrete business.

Lafarge entered India in 1999 with the acquisition of Tata Steel’s cement plant in Chhattisgarh and Jharkhand. In 2001, it acquired the plant of Raymond Industries in Chhattisgarh. Lafarge India has an installed capacity of 8.3 million tonnes per annum, which will expand to 10.9 million tonnes per annum after it completes the construction of a new greenfield plant in Rajasthan.

The firm, which has global revenues of $20.5 billion, also acquired Larsen & Toubro’s ready-mix concrete business for $349 million in 2008.

While Lafarge did not disclose its India numbers, its revenues in Asia were up 14.1 per cent to €2,745 million, with EBITDA up 37 per cent to €562 million in 2012.

In India, Lafarge saw cement domestic sales up 22 per cent year-to-date as price actions were successfully implemented to offset higher logistics and power costs, according to its annual report. Ready-mix sales were stable overall, higher prices offsetting lower volumes, the report added.

“Lafarge India (LIPL) is a leading cement player in eastern India, with a market share of around 17 per cent as on December 31, 2012. Given LIPL’s strong position in the stable eastern region, it is well-placed to capitalise on the expected strong demand growth of around 9-9.5 per cent over the next 5 years in the region, which is marginally higher than the overall pan-India demand growth for cement. LIPL enjoys sound operating efficiency, driven by sale of only blended cement, which leads to lower power and fuel & raw material consumption per tonne of cement, and use of power sourced at competitive rates,” said a report by credit rating agency CRISIL on the firm.

Lafarge said in a statement that India is an important market and it has been present in this fast-evolving market for the past 15 years.

Interestingly, this is not the first time Lafarge has sold stake in its India operations to an overseas investor. At the turn of the century, it sold 23.6 per cent stake to the pension fund, State of Wisconsin Investment Board, but bought it back in 2005.

(Edited by Sanghamitra Mandal)

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