By 05 July, 2016
JK Paper bids to buy two units of Bilt

Avantha Group firm Ballarpur Industries Ltd (Bilt), the country's largest paper company, said on Tuesday that it has received a preliminary interest from Singhania Group's JK Paper Ltd to buy two out of its five paper plants in the country.

JK Paper, which is run by Harsh Pati Singhania, has offered to buy Bilt's plants located at Chandrapur and Gadchiroli districts of Maharashtra. It did not say how much it is looking to pay for the units. JK Paper has capacity to produce 4.55 lakh tonnes per annum. With this deal, it will get a major leg up and would be the largest paper producer in the country by capacity.

These two plants, having a combined capacity of 3.53 lakh tonnes per annum, are part of Bilt's step-down Dutch subsidiary Bilt Paper BV that sought to go public overseas several years ago but later gave up the idea.

Bilt Paper, in turn, owns Bilt Graphic Paper Products Ltd (BGPPL), an indirect subsidiary of Bilt. BGPPL owns four plants in India engaged in writing and printing paper, including the two that may change hands. It also owns plants at Bhigwan (Maharashtra) and Sewa (Orissa).

BGPPL's sister firm Sabah Forest Industries (also a part of Bilt Paper) operated the group's business in Malaysia in the same product line. Last year, Bilt inked an agreement to sell Sabah Forest too as part of its plans to develerage its balance sheet.

Besides these five plants, Bilt has exposure to specialty paper, tissue paper and rayon grade pulp through two separate units in India. These businesses cater to industrial and FMCG firms as clients.

Interestingly, both the proposed buyer and seller count IFC, the private sector investment arm of the World Bank, as an investor. IFC had invested in JK Paper through a preferential allotment around a decade ago and remains a key institutional shareholder.

It later came in as an investor in Bilt Paper. IFC had invested $100 million in Bilt Paper in 2014 besides lending some $250 million to the IPO bound company.

Bilt Paper had previously explored a plan to raise $330 million through a listing on the London Stock Exchange in 2011. Bilt had later postponed and eventually put the plans on the back burner. It was later eyeing a Singapore listing. This company had also attracted funding from Singapore's sovereign wealth fund GIC.

The idea, back then (2007), was to drive a better valuation for the commodity part of paper business and to raise capital for further expansion at better terms. This was anchored on the argument that commodity paper business derives better valuation multiple in international markets compared to India.

As first reported by VCCircle, the group had a strategy flip in 2012. The group finance chief B Hariharan had said back then, "When we approached investors while preparing for overseas listing we got the feedback we should bring all paper business under the same entity. So now, with this move barring specialty paper at Shree Gopal unit, all the paper production would come under this overseas PE-backed subsidiary."

With the proposed overseas listing not moving ahead, the firm was battling poor growth prospects, loss-making Malaysian business and debt on its books. If it goes ahead with the sale of the two units in India, it would have divested a large part of its writing and printing paper business that housed its core operations.

Avantha's debt woes

Meanwhile, for Gautam Thapar-led Avantha Group, this adds to the string of asset sales after piling on heavy debt, especially to build its power generation business.

Besides the Malaysian paper business, it has divested assets in power and engineering sector. The group hived off the consumer products business of its flagship firm Crompton Greaves into a separate listed firm and has simultaneously entered an agreement to sell its entire stake in the hived off business to a private equity firm Advent and Singapore state investment firm Temasek.

Separately, Crompton Greaves has also sold some of its several global assets it created through acquisitions over the last decade.

The group also sold 600 MW thermal power project Korba West Power Co Ltd (KWPCL) housed under Avantha Power & Infrastructure Ltd to Adani Group at an enterprise value of Rs 4,200 crore.

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