Blackstone to invest in cement, consumer lending in India

Private equity (PE) firm Blackstone Group Lp is scouting for investments in India’s cement and financial services firms, especially non-banking finance companies (NBFCs) and housing finance firms, said two people familiar with the development.

“The fund is keen to acquire a consumer lending business as they expect it to grow significantly over the next few years. Apart from that, it is aggressively chasing cement assets in the country as it doesn’t have an exposure in this segment in India yet,” said the first person mentioned above, who did not want to be identified.

In May, Blackstone had placed its bid to acquire 5.15 million tonnes per annum (mtpa) cement assets of French cement firm Lafarge SA, which was ultimately acquired by Kolkata-based Birla Corp. Ltd for an enterprise valuation of ₹ 5,000 crore.

“The fund looks at cement as a consumer product rather than a business-to-business construction material product and it believes there is a significant growth opportunity in this space for newer investors to come in,” the first person added.

According to two other investment bankers who are directly aware of the process, Blackstone has placed its bid to acquire Reliance Cement Co. Pvt. Ltd, a wholly-owned subsidiary of Anil Ambani-owned Reliance Infrastructure Ltd.

“Last Friday (23 October) was the last day to submit bids for the asset and it is expected to fetch a valuation of ₹ 1,000 crore per million tonne, effectively making it the largest deal of this year,” said an investment banker involved in the process.

According to the company’s website, Reliance Cement has a total installed capacity of 5.8 mtpa. Of this, 2.8 mtpa is located in Maihar, Madhya Pradesh, 2.2 mtpa at Kundanganj, Uttar Pradesh, and 0.5 mtpa in Butibori, Maharashtra.

Reliance Infrastructure did not respond to an email sent on Friday. Blackstone declined to comment for the story.

“Cement is a good sector to pick at this point and there is not enough competition in the segment. Also, with the Competition Commission of India keeping a close eye over large firms, it has become difficult for them to increase capacities through the inorganic route. Thus, it provides a perfect opportunity for new investors to come in,” said Ajay Garg, managing director at boutique investment banking firm Equirus Capital Pvt. Ltd.

Garg adds that as the economy picks up, cement firms can grow 12-15%. The only other global PE fund which owns cement assets in India is KKR India, an arm of global PE firm KKR and Co. Lp through its investment in Dalmia Cement (Bharat) Ltd. KKR had invested ₹ 750 crore in the firm in May 2010.

Blackstone’s interest in consumer lending can be attributed to the fact that the segment is growing at 25-30% per annum and listed firms in the NBFC segment are trading at 3-4 times the book value, the investment banker quoted above said.

In September, Blackstone bought the business process outsourcing (BPO) unit of UK-based Serco Group Plc. for about ₹ 2,558 crore and rebranded it Intelenet Global Services 2.0. The firm has so far undertaken three buyouts, including this one.

Blackstone did not make any new investment after March 2013 when it invested in Multi Commodity Exchange of India Ltd (MCX). In January 2014, it raised its stake in MCX and, as of September, it owns a 4.79% stake in the firm.

The fund is looking to invest in sectors like financial services which includes consumer lending, information technology, cement and healthcare.

According to a Reuters report in May, Blackstone managed to raise $17 billion from limited partners for its latest PE fund in just seven months, the biggest first close of a buyout fund ever. Once a fund achieves first close, it starts making investments. Going forward, the fund is keen to undertake larger transactions, said the second person mentioned above.

According to Grant Thornton India Llp, in January-September, PE firms committed ₹ 81,000 crore to Indian firms, making it the highest ever capital allocation by fund managers in the country.

According to the third quarter presentation available on Blackstone’s website earlier this month, during the last quarter, the fund has completed private sales of three businesses, of which two were in India. These include CMS Info Systems and Agile Electric Sub Assembly Pvt. Ltd for ₹ 656.59 crore.

Blackstone, which established its office in India in August 2005, has since then committed $3.5 billion in the country. Its corporate PE arm invests out of Blackstone Capital Partners VI global fund, which has a corpus of $16.2 billion. The PE arm of Blackstone in India has committed around $1.9 billion in equity across 20 transactions. Real estate investments are made from Blackstone Real Estate Partners (BREP) VIII—its $15 billion global fund—and BREP Asia. It has committed around $1.6 billion across 16 deals and also manages $456 million Merrill Lynch-Asia fund’s assets in India.

This year, the fund has exited two of its investments and expects to exit a few more. In total, the firm has exited four investments, including Intelenet Global Services, Agile Electric, CMS Info and Emcure Pharmaceuticals Ltd.

In an interaction on 31 July, Amit Dixit, senior managing director at Blackstone, indicated it will be exiting four firms over 18-24 months. With these, Dixit said Blackstone has returned nearly $1 billion in capital to its limited partners from India investments in the last one year. He is hopeful of returning more as it exits more investments through upcoming IPOs.

Two of its investee firms S.H. Kelkar and Co. Ltd and Nuziveedu Seeds Ltd are expected to go public soon. Blackstone is seeking to exit two more firms through public listing.

The Economic Times reported on 15 October that Ratul Puri-owned Hindustan Power Projects Pvt. Ltd has hired Citibank for a ₹ 3,200 crore IPO. Blackstone is an investor in the company.

“There is a clear outlook by PE funds to cut larger sized cheques in India this year and there are enough assets in the market which are waiting to be bought out by these funds. Also, funds are now investing more and more towards building capabilities and management teams to run these businesses and it does not matter which sectors they pick,” said Vikas Khemani, president and chief executive, Edelweiss Securities Ltd.