Avantha Group likely to rebuff JK Paper’s bid for two factories
Mismatch in valuation by Avantha Group and JK Paper is being blamed for stalled talks
Mumbai: Avantha Group is likely to reject rival JK Paper’s offer to buy two paper factories in Maharashtra run by group company BILT Graphic Paper Products Ltd (BGPPL), three people aware of the development said.
In July, JK Paper had made a preliminary non-binding offer to acquire the two units at Ballarpur and Asthi in Maharashtra. The two factories make pulp, paper, paperboards and other paper products.
Talks between the two firms have broken down because of a disagreement over the valuation of the assets, the people aware of the discussions said, requesting anonymity.
Although the exact value of JK Paper’s offer could not be immediately ascertained, the people cited above said that Avantha Group is no longer keen on the deal and has instead reached out to other potential investors to infuse working capital into BGPPL, which is going through a serious cash crunch.
In a filing to stock exchanges on 22 October, JK Paper had said that it had submitted a tentative offer and a draft term sheet for the units.
While an Avantha Group spokesperson declined to comment on the story, emails sent to JK Paper on Friday remained unanswered until the time of going to press.
Ballarpur Industries Ltd is the flagship company of the $4 billion Avantha Group and is one of India’s largest manufacturers of writing and printing paper. The company has six manufacturing units across India and till recently had the largest share of the domestic paper market. Both Ballarpur and Asthi units account for a large portion of the company’s total production. In FY2016, the total paper production at Ballarpur was 247,649 million tonnes (mt), while Asthi produced 43,478 mt of paper.
For the year ended 31 March, the company clocked net sales of Rs4,221 crore with an Ebitda of Rs732 crore, but paid an annual interest Rs463 crore. The company has been focusing on reducing debt through equity infusion or asset sales. In FY2015, it received an equity infusion of $100 million from International Finance Corp. in its step-down subsidiary BILT Paper BV, which was used to pre-pay the debt.
According to India Ratings, BILT will need refinancing to fund its debt obligations, which have accumulated largely due to the underperformance of its Malaysian operations and a weakening demand for paper globally.
However, the financial woes of Avantha Group are not limited to BILT alone. In 2014, Avantha Power sold its Korba power plant to Adani for Rs4,200 crore. Another group company, Crompton Greaves Consumer Electricals Ltd, sold a large stake in its consumer electrical business to private equity funds Advent International Corp. and Temasek Holdings for Rs2,000 crore.