Race for JSW Cement: Apollo Global, Advent and Synergy Capital in fray for stake sale at valuation of around $1.5 billion

In a recent research report, Macquarie said it saw solid demand growth with stable margin for domestic cement players in the upcoming financial year.

Private equity funds Apollo Global Management, Advent International and Synergy Capital are part of a three-way race to pick up a minority stake in Parth Jindal-led JSW Cement, the IPO-bound cement subsidiary of the $12-billion diversified conglomerate, people with knowledge of the matter told Moneycontrol.

“Apollo Global, Advent International and Synergy Capital are the three suitors who have moved on to the next round. JSW cement plans to sell a minority stake (in the mid-teens) and raise capital for capex,” said one of the persons cited above.

“The plan is to raise around $200 million via the proposed minority stake sale . The deal could be a combination of debt and equity and the exact contours haven’t been frozen as yet,” added a second person.

“Depending on the final structure, the combined valuation of JSW Cement could be around $1.5 billion or higher. There are not too many domestic cement assets of this scale where there can be a transaction. Investment bank Citi has been mandated to scout for buyers,” added a third person.

“JSW Cement is planning an IPO in the next two years and this fund raise will help it to expand its existing capacity by 60 percent to 70 per cent, including on the clinker front. The deal will help it accelerate growth and the business is doing well and sectoral prospects are good,” a fourth person told Moneycontrol. Clinker is a nodular material which is used as the binder in cement products.

All the four persons spoke to Moneycontrol on condition of anonymity.

In response to an email query from Moneycontrol, JSW Cement, Citi and Advent International declined to comment. Moneycontrol is awaiting an email response from Apollo Global Management and could not immediately elicit a response from Synergy Capital. This article will be updated as soon as we hear from both the firms.

On September 2, 2020, Moneycontrol was the first to report that JSW Cement was on the prowl to raise funds.

In a recent research report, Macquarie said it saw “solid demand growth with stable margin” for domestic cement players in the upcoming financial year. “Demand has held up better-than-expected, and we estimate only a modest 3 percent decline in FY21 (10 percentage points above our May 2020 forecast). We expect this to be followed by a solid 13 percent FY22 growth helped by the government’s focus on infrastructure, healthy rural demand and a potential recovery in urban housing, apart from a low base,” the report said.

THE JSW CEMENT STRATEGY

JSW Cement has an overall capacity of around 14 mpta, and its key markets are in South and East India. It has five facilities in Nandyal (Andhra Pradesh), Vijaynagar (Karnataka) , Salboni (West Bengal), Jajpur (Odisha)  and Dolvi (Maharashtra).

JSW Cement has an overall capacity of around 14 mpta, and its key markets are in South and East India

“We plan to fund the entire expansion through debt of Rs 1,000 crore, internal accruals of Rs 1,000 crore and an equity infusion of Rs 1,500 crore. For equity, we are in advance talks with private equity players both in India and abroad to raise around $200 million by the end of FY21. Citi has been appointed as banker for raising the fund. This will help us reach around 25-million tonne per annum (mtpa) capacity in the next two years from 14 mtpa at present,” Jindal said.

“Going ahead, we expect demand recovery in the coming quarters and hope to list our company by December 2022,” he added.

A CLOSER LOOK AT THE THREE BIDDERS

Synergy is a private equity fund manager and strategic advisory firm present in Dubai, London, Mumbai, and Singapore. The firm focuses on the industrials, metals, and power sectors globally. Synergy is regulated in Dubai by the Dubai Financial Services Authority (DFSA). According to its 2020 review, it has deployed around $470 million (along with its co-investors) in eight companies across six countries in Asia and Europe.

Advent has been investing in India since 2007. In this time, it has deployed over $1.7 billion in 12 companies with headquarters or operations in the country. The PE fund has significant experience in the healthcare industry globally. In the past 30 years, the firm has invested or committed over $9.6 billion in 48 companies in the sector, including over 20 businesses involved in pharmaceutical R&D, production, and distribution. Back home, in February 2021, it acquired a majority stake in ZCL Chemicals Limited, formerly known as Zandu Chemicals Ltd. It has ambitions of diversifying its portfolio and is keen on the cement segment, according to industry officials.

Apollo Global Management is no stranger to the JSW Group. Back in 2018, AION Capital Partners, the joint venture between the US-based alternate asset manager and home grown fund ICICI Ventures (I-Ven), acquired Monnet Ispat in a joint venture with Sajjan Jindal-owned JSW Steel as part of a distressed asset sale. The AION Capital Partners JV ended in 2020. In the past Apollo Global Management has struck deals with Dish TV and the Welspun Group. It has also tied up with the likes of Panchshil Realty and Piramal Housing Finance for investment platforms.