A couple of months back, Rain Calcining Ltd, Asia’s largest calcined petroleum coke (CPC) producer, lost out in an ambitious attempt to buy the world’s largest coke producer, Great Lakes Carbon USA Inc.
On top of it, Great Lakes ended up with Oxbow Carbon, the raw materials supplier and marketing partner of Rain Calcining after a prolonged takeover battle that resulted in strained relations between Rain and Oxbow.
But with its $595 million (Rs2,440 crore) acquisition of the world’s second largest CPC maker, CII Carbon LLC, Rain has not only gained scale with a 1.84-million tonnes (mt) capacity, it has leapfrogged Great Lakes.
“This makes us the world’s largest producer of CPC with a share of around 22% in the global CPC market estimated at around $4 billion,” Rain executive director Y. Santosh Kumar Reddy, told Mint in an interview over the weekend.
The acquisition would help Rain in ending its dependency on Oxbow Carbon for raw materials and marketing, and also enable it significantly to reduce raw material and finished-product distribution costs. Still, Reddy declined to comment on specific plans to terminate its current alliance with Oxbow Carbon, which also owns 5% equity stake in Rain. But that holding is set to go down to around 1% with the merger of Rain Calcining into Rain Commodities.
The proposed deal “will bring in substantial synergies... that too without any equity dilution” for Rain, notes Nitin A. Khandkar, a senior vice-president, research with the Mumbai-based research firm Keynote Capitals Ltd.
Advantage Rain: A preheating/calcining/ cooling tower. The acquisition will help Rain end its dependency on Oxbow Carbon.
Petroleum coke is a manufactured carbon product produced at a limited number of oil refineries. Coke, as it is removed from the coking process, is referred to as “green coke”. Green petroleum coke contains about 15-20% residual hydrocarbon materials. Calcined petroleum coke is the end product that results from heating green petroleum coke to drive off moisture and other volatiles. Sulfur is reduced during calcination and fixed carbon can be increased to over 99%.
CII Carbon has production facilities in Illinois, Louisiana, Mississippi and West Virginia. Rain operates two kilns in Visakhapatnam. The combined companies would have little over 2.4mt per annum of CPC production. Rain is expanding production capacity at an investment of $80 million to add 4.8mt in 2009.
Great Lakes and British Petroleum Plc. are the other two leading CPC producers in the world with a market share of little less than 22% and around 16%, respectively. The balance 40% of global CPC market is accounted for by several medium and small-sized players.
The acquisition of CII Carbon is routed through Rain Calcining’s US-based subsidiary Rain/CII Holdings Inc., a special purpose vehicle floated for the purpose, and is set to be completed by month-end.
“We have already entered into a definite securities purchase agreement with the privately held Dutch company CII Carbon. It is a clean transaction and we do not foresee any obstacles of the type we encountered in our attempts to acquire GLC,” said Reddy.
The combined entity of CII Carbon and Rain would end up with annual sales of $550 million. Of this, CII Carbon accounts for $375 million, while Rain would contribute $175 million, Reddy said.
Rain plans to fund the acquisition through 20% equity and the rest in debt. “We need $119 million as equity, $476 million of debt. One of our subsidiaries, Rain Commodities (USA) Inc., has already raised $92 million through preferential offer, which would now be routed towards our equity contribution,” said Reddy.
On the major advantages from the acquisition of CII Carbon, Reddy said CII has strong and long-term associations with the petroleum refineries for over five decades. “CII Carbon would not only help us in supplying green petroleum coke but also take up marketing responsibilities of our CPC production, which we have been historically outsourcing,” he said.
Reddy also noted that Rain-CII Carbon combination would create a company with assets strategically located worldwide. “This enables us to efficiently supply the aluminium and titanium dioxide industries across the globe,” he said. “While green petroleum coke is available in America and China, the CPC users, aluminium and titanium dioxide industries, are growing in India, China and West Asia.”