Mumbai: India Resurgent Fund (IRF), a joint venture between Bain Capital Credit and Piramal Enterprises, has invested about Rs800 crore in Chennai-headquartered Archean Chemical Industries Ltd in a structured credit transaction, two people with direct knowledge of the development said.
According to the people cited above, IRF has bought the existing loans of the industrial chemicals manufacturer from a group of public sector banks.
“According to the terms of the deal, IRF will infuse both debt and equity into the company to help it restructure its cash flows," said the first person, adding: “It is a sweet spot deal for the IRF. It will charge an annual interest of 16% on the debt, and will also receive a share of the Ebitda on attaining certain milestones by the company."
IRF is aiming to get close to 25% returns from the transaction.
Email queries to the Piramal Group and Archean Chemical remained unanswered till press time.
“After the equity infusion, IRF is expected to own close to a 30% stake in the company. However, Archean’s current promoters will continue to hold the controlling stake," said the second person cited above. “The company is expected to refinance the debt component of the transaction, going forward."
Archean Chemical has been struggling to service its debt following the delay in achieving full operating capacity, which resulted in cost overruns and incremental losses and an unfavourable debt repayment schedule.
Last year, the company’s management had proposed a restructuring of its debt under the Scheme for Sustainable Structuring of Stressed Assets (S4A) scheme. Subsequently, the lenders had converted part of their debt into equity, but the company continued to post substantial losses due to weak global prices for its products. Consequently, there was further delay on its restructured debt obligations, shows a report by credit rating firm ICRA. Alongside, the promoters have been unable to infuse the requisite additional funds due to Archean Group’s weak financial profile, the ICRA report noted in April.
Interestingly, this is the second time that the Archean Group, promoted by chairman P.B. Anandam, has raised money from structured credit funds. In 2014, it had raised close to Rs160 crore from KKR to fund its capex needs.
Founded in July 2009, Archean Chemical owns and operates an integrated marine chemicals complex in Kutch, Gujarat. The plant produces sulphate of potash (SOP), industrial salt and bromine. The integrated complex uses the available brine flowing over marine mineral deposits in the Rann of Kutch.
It is one of the leading producers of industrial salt in the country and is the first domestic manufacturer of SOP.
Archean Chemical is part of the Archean Group, which has business interests across building materials, mining and minerals, industrial chemicals and fertilizers, shipping and shipbuilding, oil and gas, and renewable energy.
The IRF-Archean deal underlines the growing trend, wherein companies facing early distress and weak credit profile are turning to private credit to meet their capital needs.
Mint had reported in April that Fortis Healthcare, which is in the midst of a takeover battle and is facing cash flows issues, had raised around Rs150 crore from RattanIndia Finance, a joint venture between RattanIndia Group and US-based private equity firm Lone Star Funds, to keep the struggling hospital operator afloat till it found a buyer.
Several other promoters, too, are looking to tap into alternative sources of credit to avoid default of bank loans, which could lead to bankruptcy proceedings.