GE Equity, the private equity arm of GE, is picking 30% stake in Indian aircraft component maker Kerns Aero Products for Rs 10 crore($2 million). This comes on the back of a slew of such transactions where GE has picked small stakes in Indian manufacturing firms(such as rail wagon manufacturer Titagarh Wagons and power firm Sudhir Gensets) who are involved in business areas where GE has an exposure.
Formed in 2007, Kerns Aero is co-promoted by US-based Kerns Manufacturing Corp(who holds 25%) and two South Indian business groups: Shivkumar Reddy Group (40%) and Babu Group (35%).
Kerns had applied to foreign investment promotion board(FIPB) to clear the foreign investment proposal. The proposal which has been shown the green signal involves Kerns Aero Products issuing 10.35 lakh mandatory convertible preference shares of Rs 10 each at a premium of Rs 87 to GE Equity Capital. The deal values the two year old firm Kerns Aero at Rs 33.3 crore.
In addition, the foreign collaborator Kerns Manufacturing will be allotted fresh 1.15 lakh shares in lieu of technical know-how fees, training and continuous supply of designs. This would give Kerns Manufacturing 20% of the expanded capital base. After conversion into equity GE will hold 30% of the Chennai-based firm.
The application to FIPB also mentions that Kerns Aero will issue warrants which would represent up to 15% of its equity to GE Equity Capital. It is not clear by when would these warrants be issued and at what ratio would it be convertible into equity shares.
It is possible that GE Equity Capital may become the single largest shareholder of Kerns Aero after the warrant conversion.New York-based Kerns Manufacturing is a privately-held firm and manufactures fabrications for jet engines and is a supplier to GE Aircraft Engines.