Mumbai, June 29: Apollo Global Management, the private equity firm, is investing Rs 2,250 crore ($500 million) in the Welspun group. The investment will be made in Welspun Corp Ltd (WCL) and two other group companies — Welspun Maxteel Ltd (WMSL) and Welspun Infratech Ltd (WITL).
The unique deal will see funds affiliated with Apollo investing Rs 1,305 crore in steel pipe maker WCL. Of this, a sum of Rs 788 crore will be invested through preferential allotment of fully or compulsorily convertible debentures (FCDs/CCDs), while Rs 517 crore will come via non-voting global depository receipts (GDRs).
According to Welspun, the FCDs/CCDs will carry a coupon of 5 per cent and will be mandatorily and fully converted within 18 months into equity shares at Rs 225 per share.
This represents 13.3 per cent of WCLs equity. Moreover, Apollo will also subscribe to non-voting GDRs of Rs 517 crore at the same price of Rs 225 per share.
The price of Rs 225 per share works out to almost a 33 per cent premium on WCLs closing price on the stock exchanges on Tuesday.
The Welspun Corp gained nearly 3 per cent on the BSE today before closing at Rs 173.90.
In WMSL, Welspun Corp and funds affiliated with Apollo will acquire the entire promoters stake.
WMSL, the direct reduced iron producer, is planning to expand downstream by making high-end steel slabs with a capacity of 1.5 million tonnes.
As part of the transaction, WCL will be purchasing 87.5 per cent of the WMSL equity for Rs 805 crore, while Apollo will acquire 12.5 per cent of the WMSL equity for Rs 140 crore.
Further, Apollo will invest an additional Rs 130 crore for capital expenditure.
WCL will become a more vertically integrated manufacturer in the oil and gas line-pipe industry because of this step.
This investment plan, which is subject to necessary regulatory and statutory approvals, is expected to be completed within 45 days.
Apollo and its affiliates are also looking to invest up to Rs 675 crore in WITL, a subsidiary of WCL. This will be in the form of debt, equity or a combination.
The group went on to add that these transactions would enable it to compete in the global oil and gas line-pipe market even as the business is able to withstand volatility in steel prices.