International Finance Corp (IFC), the private equity arm of the World Bank, is upping its deal sizes. In what would be amongst its biggest private equity transactions, IFC is picking up around 12% stake in Polycab Wires for Rs 551.5 crore ($120 million). The deal values the flagship cable manufacturing business of Mumbai based Jaisinghani family at Rs 4,600 crore ($1 billion).
The transaction involves a mix of fresh issue of shares and convertible warrants. IFC is acquiring a 10% stake for around Rs 450 crore besides picking up warrants which would give it an additional 2% equity stake for around Rs 100 crore. These warrants will be fully paid and will be convertible based on achievement of certain financial milestones. The shares and warrants are being picked at a price of Rs 674 with a premium of Rs 664 over the face value of Rs 10.
Polycab is one of the largest domestic players in the market for cables. It is the flagship company of the Polycab group which has eight cable manufacturing companies and is the leading manufacturer of power cables and light duty cables in India. Besides manufacturing of insulated wires and cables it is also engaged in manufacturing of optical fibre cables. The firm has an authorised share capital of Rs 80 crore with paid up capital of Rs 60 crore.
Polycab Wires is undertaking a capital expenditure program spread over the next two-three years at its existing production units to scale up operations in the cables business in India. Part of the funds being raised will be used for making downstream investments in partnership firms of the group, including Bharat Cables, Polycab Industries and DK Plastic Industries. These partnership firms are being converted into companies.
IFC has largely been focusing on smaller deals in the $20-50 million bracket and has been among the most active equity investors in India. While it has focused on smaller deals, over the years it has also built up an exposure of more than $100 million in a handful of companies including Tata Steel, Cairn, Petronet LNG, HDFC, ICICI Bank and HDFC Bank. Some of these investments were through the debt route.
The deal will set a benchmark for the electrical cable industry. The domestic industry is largely accounted by the unorganised sector who command more than 50% market share. Among the organised sector the large players include Polycab, Finolex, KEI Industries and Universal.