Private equity giant KKR is swapping its stake in Dalmia Cement for a piece of its public listed parent in a deal that would allow it to part exit, as per a stock market disclosure on Friday.
The twin transaction would see Dalmia Bharat Ltd buying out KKR's 15 per cent stake in Dalmia Cement for Rs 600 crore ($89 million) and issue shares worth Rs 619 crore ($91.3 million). It will give KKR 8.5 per cent stake in Dalmia Bharat, making it the single-largest institutional shareholder of the firm.
This would provide a liquidity route for KKR that had invested in the company way back in May 2010. At that time it had said it will put in up to Rs 750 crore ($165.59 million then) to buy as much as 21 per cent in what was the largest private equity deal in the cement industry back then. Three years later, Baring PE Asia picked a stake in Lafarge's India unit in a special situations deal for $260 million, which it exited recently.
However, as part of the deal, KKR had initially picked 15 per cent stake in the unit for Rs 500 crore ($110 million), as per VCCEdge, the data research platform of VCCircle.
Dalmia Bharat did not clarify if KKR indeed restricted its investment to that amount or later put in more.
Dalmia Bharat will issue shares to KKR at Rs 825 each, a premium to its market price. The firm's scrip last traded at Rs 766.85 a share, down 2.7 per cent in a weak Mumbai market on Friday.
Last year, KKR had made its debut exit from an India portfolio firm when it sold its entire holding in Bharti Infratel. KKR, one of the top-tier alternative investment asset managers in the world, had generated a modest 70 per cent absolute return in rupee terms over a seven-year-long period and just under 10 per cent in dollar terms in that deal. PE firms chase annualised returns of over 20 per cent in emerging markets in local currency.
KKR India CEO Sanjay Nayar said the investor continues to believe in the long-term growth story of the cement firm and added, "We believe that Indian macroeconomic growth and infrastructure story is poised for a significant uptick in coming years and the consolidation in cement industry is likely to happen."
As part of consolidation and growth of the cement sector, Dalmia Bharat Group has been strategically acquiring assets and creating new assets in Southern, Eastern and Northeastern India.
Last February, it raised its stake in OCL India Ltd (formerly Orissa Cement) from 48 per cent to 74.6 per cent through an inter-se share transfer within the promoter group in a deal worth Rs 1,023 crore ($165 million then).
OCL India has plants in Odisha and West Bengal. With Dalmia Cement increasing its stake in OCL India, 48 per cent of Dalmia's capacity is in South India and the remaining 52 per cent in East and Northeast India.
Earlier in March 2014, Dalmia Cement had inked a pact with Jaiprakash Associates to acquire its 74 per cent stake in a cement joint venture with SAIL in Jharkhand for about Rs 667.56 crore ($109 million). It later acquired the remaining 26 per cent stake in Bokaro Jaypee Cement Ltd (BoJCL) from Steel Authority of India Ltd (SAIL) for Rs 234.56 crore ($38 million).
In the past, it has bought stakes in Adhunik Cement and Calcom Cement.
Dalmia Group has a total capacity of 25 million tonnes, making it one of the key cement manufacturers in the country. The overall market is dominated by UltraTech besides Holcim (Ambuja and ACC) among others.