Private equity major Blackstone has bought 1.87 per cent stake in Monnet Ispat, one of India’s largest manufacturers of integrated coal-based sponge iron, through secondary stock market purchases for Rs 60 crore.
The private equity firm has picked up the shares at Rs 500 each, which was also the closing price of the stock today (up 0.4 per cent). The shares were bought through Blackstone GPV Capital Partners.
This is Blackstone’s second deal in India this month. Two weeks ago, Blackstone had invested Rs 150 crore ($33 million) in FINO Ltd, which provides technology solutions for banks and microfinance institutions.
It also marks more exposure by Blackstone in the Monnet Ispat group, which is run by the Jajodias. Blackstone had invested Rs 275 crore (approximately $60 million) in a subsidiary of Monnet Ispat in the power generation space last year.
Monnet Power Company Ltd, an independent power producer which is a subsidiary of Monnet Ispat, is developing a 1,050 MW coal-fired power plant in Orissa, backed by pit-head captive coal mines. Last year, Blackstone had picked up 12.5 per cent equity stake in the company, which also has the board approval for another 600-660 MW power plant. When contacted, a Blackstone spokesperson declined to comment.
The deal comes as Monnet Ispat is evolving from sponge iron player to an integrated steel firm. CX Partners, a PE firm started by Citigroup Venture Capital International (CVCI) veteran Ajay Relan, had also bought into Monnet Ispatfrom open market last year. CX Partners had picked up around 8 per cent stake in the company for Rs 150 crore in the first quarter of 2010. Relan, who had also invested in the company when he was in CVCI, also sits on the company’s board.
Monnet Ispat reported 6.3 per cent increase in revenues to Rs 1,573 crore, with its adjusted net profit falling by 1 per cent to Rs 285 crore for FY11. But the firm is expecting a sharp acceleration in revenue growth in the next two years, according to a report by PINC Research.
Monnet plans to construct a 1.4 million tonne integrated steel plant by FY13, which involves a capital expenditure of Rs 3,200 crore. This is expected to increase the share of steel business in terms of revenues.
“We expect Monnet's steel EBITDA to grow at 60 per cent CAGR over FY11-13 on volume growth (34 per cent CAGR) and EBITDA/t expansion from Rs 4,600 in FY11 to Rs 6,500 in FY13. A foray into the merchant power in the subsidiary Monnet Power (1,050 MW project by FY14, with access to captive coal) is additional growth trigger," stated the PINC report, dated May 13.
In March this year, Monnet had acquired Indonesian coal company PT Sarwa Sembada Karya Bumi for Rs 108 crore. The deal gives Monnet access to the thermal coal mine, spread over 25,000 hectares, of which only 1,500 hectares have been explored.
Backing Promoter Groups
As global buyout majors have started investing in India’s crowded deal-making space, many of them are closing large deals by investing in a holding company or various diversified businesses of the same promoter group. These investments help in the alignment of interests between investors and promoters, besides diversifying risks in large investments.
Most recently, Apollo Global Management said that it would invest up to $494 million (Rs 2,250 crore) in three companies of BK Goenka-promoted $3 billion Welspun Group.
Last year, Kohlberg Kravis Roberts (KKR), New Silk Route and Standard Chartered Private Equity invested $200 million in Bangalore-based Coffee Day Resorts & Hotels Ltd, promoted by V G Siddhartha. The group, best known for its Cafe Coffee Day (CCD) chain, has since expanded into logistics (with the Sical buyout) and furniture business under Daffco.
TPG Capital has also backed Chennai-based Shriram group with investments in Shriram Retail Holdings, Shriram Properties and Shriram City Union Finance. TPG also partnered with Shriram Group to buy the debt-ridden Vishal Retail earlier this year.
Blackstone had also invested Rs 225 crore in a privately held promoter group firm of media company Jagran Prakashan Ltd, which recently consolidated its stake in the flagship.