Aditya Birla Group chairman Kumar Mangalam Birla. Aleris is owned by private equity funds Oaktree Capital Group LLC and Apollo Global Management LLC. Photo: Mint
Aditya Birla Group chairman Kumar Mangalam Birla. Aleris is owned by private equity funds Oaktree Capital Group LLC and Apollo Global Management LLC. Photo: Mint

Aditya Birla plans to raise $2.6 billion to fund Aleris acquisition

Negotiations stalled due to antitrust issues surrounding Aleris have revived after Aleris and Aditya Birla's Novelis reached an agreement over the extent of responsibility both sides will bear to pass regulatory scrutiny

Mumbai: Almost eight months after the Aditya Birla Group began negotiations to buy Ohio-based aluminium maker Aleris Corp., a definitive agreement is in sight, two people aware of the development said, adding a deal is likely to be signed in the next few weeks.

According to the people cited above, who spoke on condition of anonymity, negotiations had slowed down primarily due to antitrust issues surrounding Aleris. The talks have revived after the managements of Aleris and the Aditya Birla Group, represented by its North America subsidiary Novelis, reached an agreement over the extent of responsibility both sides will bear to pass the scrutiny of the Committee on Foreign Investment (CFI).

CFI, the US government body that reviews foreign investments in domestic firms and determines whether those potential investments impact national security, had earlier rejected an acquisition bid for Aleris from Chinese aluminium maker Zhongwang.

Aleris makes rolled fabricated aluminium products and has 13 manufacturing facilities across North America, Europe and China, according to the company website. It caters to different sectors, including aerospace, automotive, defence, building and construction, transportation, packaging and consumer goods.

A significant portion of its production is for the US defence industry.

The company is owned by private equity funds Oaktree Capital Group LLC and Apollo Global Management LLC.

“The structure of the deal is already laid out and funding to the tune of $2.6 billion has been tied up," said the first person cited above. “The Aditya Birla group has incorporated a separate entity under its US-based subsidiary, Novelis Inc., which will act as the bidding company."

The second person said that the bidding company will raise about $1.8 billion debt, while the rest will be raised by Novelis.

“The funding will include a term B loan, a loan facility with a portion carved out for non-banks, and institutional investors. The bidding company will also raise a bridge loan of $1 billion over 18 months, which will be partly repaid by Aleris cash flows and refinanced potentially by dollar bonds."

“Aditya Birla is creating a obligor group with shared liability among Aleris, the bidding company, and Novelis," the second person added.

Notably, this is the second time in recent months that the Aditya Birla Group is evaluating the term B route to refinance its debt.

In January, Novelis had refinanced $1.8 billion of its term loans from Asian, Middle Eastern, European and US banks.

When contacted, an Aditya Birla Group spokesperson declined to comment.

An email query to Aleris Corp. remained unanswered.

The Aleris transaction, if successful, is expected to add significantly to Hindalco’s plans of doubling its existing downstream capacity.

The company, which produces about 450 million tonnes of value-added products and wire rods, plans to increase its capacity to more than one million tonnes over the next five years.

It also seeks to add 12% more value-added products to its portfolio, which will include foil and rolled products.

In May, Hindalco’s managing director Satish Pai had told Mint that the company was open to evaluating inorganic opportunities as and when they come.

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