Post business split, KKR eyes $1 billion plus Re Sustainability sale launch in January, global funds may show interest

The NCLT ( National Company Law Tribunal) monitored scheme of arrangement of Hyderabad based Re Sustainability, was approved earlier by the firm's board for sharper focus.

More than six years after acquiring a majority stake in Re Sustainability (formerly Ramky Enviro Engineers) - India's largest integrated waste and environment management firm - KKR is exploring a fresh exit attempt post an internal rejig, and is targeting the launch of a sale process in January, multiple persons in the know told Moneycontrol.

An earlier attempt by the US private equity major to sell it's stake in the firm did not fructify into an eventual transaction. It was reported by Moneycontrol on March 23, 2022.

Also Read: KKR-backed Ramky Enviro launches sale process, valuation may exceed $1.5 billion

The NCLT (National Company Law Tribunal) monitored scheme of arrangement of Hyderabad based Re Sustainability, was approved earlier by the firm's board for sharper focus.

The scheme envisages splitting the operations into the "retained business" encompassing industrial waste management, biomedical waste management, recycling, environmental services, facilities and auxiliary services, as well as environmental and sustainability consultancy services and the "demerged business" which consists of municipal solid waste management and waste-to-energy operations.

"As per the demerger, KKR will control the "retained business" which has a non-government customer base. This is the piece they seek to sell following court approvals and exit the portfolio and they are expecting a valuation in excess of a billion dollars. The rest of the business, which has been sold back by KKR to the founders and is linked to government clients, will remain with the latter," said one of the persons cited above.

A clutch of global funds including the likes of Blackstone, Actis, Partners Group, Macquarie Group and Canadian investors like CPPIB and Brookfield Asset Management, among other parties, may either be tapped or express interest in the proposed transaction, a second person said. The Moneycontrol report dated March 23, 2022, had said I Squared Capital and Eversource Capital were potential suitors earlier.

A third person added that investment banks Barclays and JP Morgan are advising on the revived sale process.

"The scheme of arrangement under the NCLT's purview involves steps relating to creditor and shareholder meetings and once the final nod of the tribunal is in, the plan is to bring the deal to the market in January," a fourth person elaborated. As per the NCLT website, the next date of hearing in the case is scheduled for October 25.

All the four persons above spoke on the condition of anonymity.

When contacted, KKR, Blackstone, Partners Group and Barclays declined to comment. Email queries and reminders sent to Re Sustainability were left unanswered at the time of going to press. An immediate comment could not be elicited from JP Morgan and the other funds.

According to a report by PwC in April titled 'Unlocking value in ESG- enabled sectors for private equity investors' - "In Private Equity investment, it is no longer enough to identify lucrative financial opportunities. Staying ahead of the curve, over the long term, necessitates a keen understanding of the transformative forces shaping the socioeconomic landscape – including and perhaps most importantly, the way organizations are responding to environmental, social, and governance (ESG) principles."

"Already, we are seeing a strong rise in assets under management by ESG-focused funds and we expect to see this trend grow. Why? Over the past several years, new regulations, shifting consumer preferences, and fast-advancing technologies have converged to create a compelling rationale for Private Equity to invest more intentionally in ESG-enabled sectors and companies." the report argues.

RE SUSTAINABILITY 2.0: THE KKR FACTOR

KKR announced the acquisition of a 60 percent stake in the firm in August 2018 for $530 million. Back then, it was the largest buyout by a PE fund in India’s environmental services sector. The investment was part of the private equity firm’s impact investing strategy, which refers to identifying businesses with positive social or environmental impact.

Following the rebranding of the firm , in March 2022, Goutham Reddy, the MD & CEO of Re Sustainability had said “The rebranding marks a milestone in our company’s transformation from an industry leader in waste management to a company that will accelerate its focus on sustainable solutions. The company's new identity is built on a circular economy model—recycling everything—to provide sustainable solutions for the people and planet.”

As per its FY23-24 annual report, Re Sustainability has 18,000 plus industrial clients, 15 plus partnerships with municipal bodies in India, 100 facilities, 17,749 full time employees and has served 40,000 plus healthcare establishments in India.

The firm has established a distributed presence across 21 states & union territories and 11 countries spread across the Asia Pacific, South Asia, Middle East, Africa, and USA.

It handled 14.08 Lakh MT of industrial waste, 52,892 MT of biomedical waste and 804 tonnes of e-waste, according to its annual report. Additionally, it recycled 3.19 Lakh MT of construction & demolition waste, 10,635 MT of plastics and provided 3 lakh plastic EPR credits.