New Delhi/Mumbai: International Tractor Ltd (ITL) on Monday raised at least $100 million by selling a 12.5% stake in the company to private equity firm Blackstone Capital Partners (Singapore) VI, an affiliate of Blackstone Group, as the tractor maker plans to acquire at least two companies in Europe, L.D. Mittal, ITL’s chairman, said in an interview.
Hoshiarpur-based ITL, the flagship of the Sonalika Group, makes tractors under the Sonalika brand and has a 10% market share in India, which is dominated by other homegrown companies such as Mahindra and Mahindra Ltd and Escorts Ltd.
The involvement of private equity in the automobile industry is limited, with the last such deal being Hero Investments Pvt. Ltd forming a special purpose vehicle with Bain Capital and Lathe Investment Pvt. Ltd—a unit of Government of Singapore Investment Corp. (Ventures) Pvt. Ltd (GIC)—to buy Japanese auto maker Honda Motor Co.’s 26% stake in Hero Honda Motors Ltd in March 2011.
“Primarily, the money will be spent on making acquisitions abroad. We are in talks with a couple of companies in Europe in the field of auto components and agricultural equipment,” Mittal said.
He said the company will be able to finalize the buyout plans by the end of this financial year.
“The acquisitions will help us in getting foreign technologies, which, in turn, will improve our products and enter more markets overseas,” Mittal said.
Blackstone will invest in two tranches, Mittal said.
“The total deal is of around Rs.520 crore. So, in the first tranche, Rs.200 crore will come to us on an immediate basis and the rest of the money will come at a later stage, depending upon our financial performances,” he said.
An analyst tracking the sector said the company may use the proceeds to buy out other investors.
“You don’t require this kind of money to just buy assets overseas,” the analyst said, requesting anonymity.
“What comes out of it is that the money may be used to buy out JM Finance and other investors.”
Unlike other auto companies, Sonalika is associated with several private equity firms such as JM Finance Trustee and Magma Shrachi Finance Co. Ltd. Japenese tractor company such as Yanmar America Corp. is a strategic investor with ITL.
Mittal said that investment company Yanmar hasn’t expressed any desire to exit the company but that the money raised could be used to buy out JM Finance.
“It may be... it depends. It’s not yet decided. JM may be interested (in exiting) at a later stage,” Mittal said.
Blackstone India’s senior managing director and chairman Akhil Gupta said the firm had identified the rural economy as an area of interest about three years ago and has done four transactions in this space so far.
“We have proactively been looking for deals that straddle the rural income theme,” Gupta said on the phone. “It’s hard to fund deals in this space. Also, our investment ticket is large, at least $50 million to $75 million (for any particular deal),” he said.
On the issue of a potential exit from ITL, Blackstone’s Gupta said that it would most likely be through an initial public offering (IPO) of the company, four to five years later from now.