May 2009
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Birlas drop plan to sell insulator business after PE fund backs out

The Aditya Birla group’s plan to find a buyer for the insulator business has come a cropper after prospective buyers, primarily private equity funds, backed out of the deal over valuation differences.
UK-based private equity fund 3i, which was ahead in the race to acquire the insulator assets, recently opted out of the transaction. The insulator business is part of the group’s holding company, Aditya Birla Nuvo.
Foreign PE funds such as Bain Capital and Carlyle had earlier moved out of the race. Three months back, the group had mandated investment banking firm UBS to find a buyer for the insulator business, which was then identified as a non-core activity. UBS had circulated an information memorandum to the prospective buyers.
When contacted, Aditya Birla Nuvo managing director Rakesh Jain declined to comment on the plan to sell the business, saying he would not want to comment on market speculation.
Aditya Birla Insulators, part of the group company Aditya Birla Nuvo, is the world’s fourth largest maker of high-voltage porcelain insulators used in the power sector. PE funds developed cold feet after differences over valuations. According to investment banking officials, the Birlas were asking for a valuation of Rs 700-750 crore, which was unacceptable to the funds.
The insulator business reported net sales of Rs 424.8 crore for the year ended March 31, 2009. This is just 3 per cent of Aditya Birla Nuvo’s total net sales of Rs 14,200.4 crore during the year.
Though the plan to sell the business has not taken off, changing business environment has forced the group to take a fresh look at the future of insulator business. The group has now decided to strengthen the insulator business as it sees a sharp rise in the demand for electrical insulators with the new government expec-ted to make a big push for the infrastructure projects.
“With the new government expected to focus majorly on infrastructure projects, we see great potential for the insulator business. We are committed to the business and have a long-term plan. We do not want to exit the business,” said Rakesh Jain.
“Sentiments have improved. Availability of funds will not be a problem. The group is raising Rs 1,000 crore through a warrants issue,” said a banker, who has direct knowledge of group’s strategies.
The long-term plan may involve further scaling up capacities. But this will only happen after the completion of the expansions of capacities by 4,000 tonne per annum (tpa) to 52,800 tpa. “We have increased capacities by 25 per cent. We will look at expansion depending on the emerging scenario,” said Jain. Its manufacturing facilities are located at Haloi and Rishra.

Source: My Digital FC

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