Welspun to receive Rs2,250 crore PE funding from Apollo Global

The $3 billion Welspun Group will sell stakes in three of its firms to American private equity firm Apollo Global Management LLC for Rs2,250 crore, chairman B K Goenka said on Wednesday.

Apollo will invest Rs1,305 crore in the group flagship Welspun Corp, the world’s largest maker of large welded steel pipes.

Of that, Rs788 crore will be through a preferential allotment of fully/ compulsorily convertible debentures, which when converted within 18 months into equity at Rs225 a share will give Apollo a 13.3% stake in the company.

On Wednesday, the Welspun share rose to Rs178 in intra-day trading on the Bombay Stock Exchange before closing at Rs173.90, a 2.78% rise over Tuesday.

The private equity firm will also infuse Rs517 crore in Welspun by way of non-voting global depository receipts, which will give Apollo another 7% in the company.

But Goenka said though Apollo’s stake will exceed 20%, there won’t be an open offer trigger since the 7% stake has non-voting rights. “The promoter holding will be diluted by 2-3%,” he added. Promoters currently control 41.07% of Welspun.

Apollo, which has global assets under management of over $70 billion, will also pick up 12.5% in Welspun Maxsteel for Rs140 crore and invest another Rs130 crore for capital expenditure. The remaining stake of 87.5% in Welspun Maxsteel will be sold to Welspun for Rs805 crore. Welspun Maxsteel is at present 100% held by promoters.

The transactions are expected to be wrapped up by August 12.

In addition to the investments in Welspun and Welspun Maxsteel, Apollo is in talks to buy a stake in Welspun Infratech, a Welspun subsidiary, for Rs675 crore in the form of debt, equity or a combination of the two.

Parvez Umrigar, chief executive & managing director, Welspun Infratech, recently told DNA that the company will seek private equity funding of about $100 million to fund its future development projects.

“After the investments, Apollo will have two directors on the board of WCL and one each on the boards of WMSL and Welspun Infratech,” Goenka said.

He added that the money will be used for capacity expansion in Welspun and Welspun Maxsteel.

This will be Apollo’s second PE investment in India. It bought 11% in Zee group’s Dish TV for $100 million in Novermber 2009.
Mintoo Bhandari, Apollo Management’s India head, said the metal industry’s fortunes are improving and his firm has continued to invest through the downturn.

“Oil & gas projects are getting more and more offshore. This provides a huge opportunity for Welspun,” he added. He refused to divulge more.

Welspun Maxsteel, which was called Vikram Ispat when Goenka acquired it from the Aditya Birla group in 2008 for Rs1,100 crore, plans to spend Rs5,300 crore on doubling its direct-reduced iron capacity to 1.7 million tonne per annum and on setting up a 1.5 mtpa steel slab unit, besides a 330 mw power plant and a jetty.

WMSL is currently involved in a legal dispute with Reliance Industries over the latter’s reduced supply of gas from its KG-D6 fields.