French cement producer Lafarge SA has signed an agreement to acquire 14 per cent stake in its Indian arm Lafarge India from Baring Private Equity Asia for €270 million ($303.3 million or Rs 1,950 crore), it said on Tuesday.
Post acquisition, the company will hold 100 per cent stake in Indian subsidiary.
This is a precursor to completing a multi-billion dollar global deal where Lafarge and Holcim are merging to create the world's top cement company.
The Indian anti-trust authority Competition Commission of India (CCI) had approved the Indian leg of the proposed $44 billion merger between Lafarge SA and Swiss peer Holcim, in April.
The approval came with certain riders, including divestment of two cement plants—Lafarge's Jojobera plant in Jharkhand and the company's integrated unit at Sonadih in Chhattisgarh—to eliminate competition concerns. These two units together have a capacity of 5.15 million tonnes per annum.
In May 2013, Baring PE Asia had invested €200 million ($256 million or Rs 1,410 crore then) for the small stake in Lafarge India through fresh issue of securities, in a special situation deal. The deal was one of the rare instances where a multi-national firm divested a minority stake in India operations to a private equity firm to fund its growth.
Lafarge, one of the world’s largest cement manufacturers, was at that time looking to cut its €12.2 billion debt, caused by acquiring the Middle Eastern cement maker Orascom in 2007. The French multi-national has been shedding non-core assets to bring the focus on its key cement and concrete business.
Lafarge entered India in 1999 with the acquisition of Tata Steel’s cement plant in Chhattisgarh and Jharkhand. Later it acquired the plant of Raymond Industries in Chhattisgarh and snapped L&T's concrete business. It also expanded its operations through a green-field plant in Rajasthan.
Currently, the firm has six cement plants across Chhattisgarh, Jharkhand, Rajasthan, Haryana and West Bengal. The total cement production capacity currently is around 11 MT as of Sept 2014.
It sells cement under the brands like Concreto, Duraguard, Duraguard MF, Infracem, ProWall LITE and Lafarge PSC.
For Baring PE Asia, this was the biggest bet yet in India at that time and it has sealed a neat profit from the investment. In local currency terms, it has churned around 38 per cent return while in dollar terms it has generated a relatively modest 18 per cent return (not counting dividend if any) over two years.
The Asia-focused sector agnostic PE firm that raised $3.98 billion in its new flagship fund early this year had also sealed a big deal in 2013 when it hiked its holding in public listed IT firm Hexaware.