Bharat Forge plans to raise $500 million via offshore bonds

Bharat Forge will use the proceeds from the overseas bond issuance to restructure debt and finance expansion


Bharat Forge, which has seen a decline in revenue from auto components business, has been expanding its presence in non-auto areas.
Bharat Forge, which has seen a decline in revenue from auto components business, has been expanding its presence in non-auto areas.

Bharat Forge Ltd, India’s largest auto parts maker, plans to raise $500 million in an overseas bond sale, two people aware of the development said.

The company will use the money to restructure debt and finance expansion. As of September quarter, Bharat Forge’s total standalone debt was Rs2,105.97 crore.

“The money raised will be used to reduce its debt as well as for greenfield expansion,” said one of the two people cited above on condition of anonymity. Discussions with investment bankers are on, he added.

The company’s chairman and managing director Baba Kalyani did not respond to an email, text messages and repeated calls.

Bharat Forge, which has seen a decline in revenue from auto components business, has been expanding its presence in non-auto areas. In the last couple of years, the company’s exports have declined. A slowdown in its key markets, especially the North American Class 8 truck, affected the export revenue in the last couple of quarters. Sales in the North American truck market declined by 47% in first quarter of FY17 from a year earlier, impacted by declining volume and an extended holiday period during the quarter and demand is expected to go through another dull year in CY17, HDFC Securities said in a note to clients in February.

Bharat Forge is planning a capital expenditure of Rs300 crore in FY17, including two new press lines of 5,000 tonnes and 2,000 tonnes for new passenger vehicle (PV) business. The company targets to be debt-free by FY18 or may be before that, according to a February report by Karvy Stock Broking Ltd. The company plans to set up a machining facility for aerospace components.

“In the global context, improvement in India’s macroeconomic parameters and higher growth prospects have reflected in increased demand for Indian credits. Moreover, India is lobbying hard with international rating agencies. Despite India’s rating remaining static for a very long time, international investors continue to remain praiseworthy of our economic resilience and fundamentals,” said Mahesh Singhi, founder and managing director at Singhi Advisors Pvt. Ltd.

The past few months have seen some activity among Indian entities seeking to raise money abroad through bonds. Last month, the country’s largest lender State Bank of India (SBI) said it will be tapping overseas debt markets with a $1.5 billion dollar bond sale next financial year. In January, SBI had raised $500 million in a five-year dollar bond sale. JSW Steel Ltd also plans to sell bonds and has hired investment bankers.

“Raising funds through overseas bonds will definitely impact the debt on books as companies look for fund-raising options to reduce debt, refinance existing debt and lower cost of debt which include tapping bond markets in India and abroad,” Singhi added.

Part of the $2.5-billion Kalyani Group, Bharat Forge makes components for the automotive and non-automotive sectors including oil and gas, power, rail and marine, aerospace, metals and mining, construction and general engineering. For the year ended 31 March 2016, revenue from commercial vehicles contributed 48%, non-auto 36% and passenger vehicles 16%. The group recorded a consolidated revenue of Rs7,647 crore for FY16.

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