INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS...

BILT BUYS SABAH FOR $261 MILLION

BALLARPUR Industries (Bilt) is acquiring Malaysia 's largest pulp and paper company, Sabah Forest Industries (SFI), in a $261-million deal. The acquisition — the largest by an Indian company abroad in the paper and pulp industry — will catapult Bilt into the top 10 paper companies in Asia , excluding Japan . The deal is subject to due diligence and approvals from authorities and shareholders.

SFI, which is a debt-free pulp and paper manufacturer, is an unlisted company owned by Malaysia 's Lion Group, which is into diverse business areas. According to the conditional share purchase agreement, Bilt will pick 97.78% equity stake in SFI along with USbased financial services group JP Morgan, which will pick up 20% with a buyback arrangement. Bilt will have an option of buying the 20% equity in three years.

The payment will be staggered, with the first tranche of $180 million to be paid on completion of the agreement within 120 days. Thereafter, $45 million will be disbursed within the next one year and another $36 million within the next 18 months. Bilt will finance the equity portion of the acquisition through internal cash flows.

The acquisition brings additional paper capacity of 1.44 lakh tonnes and a pulp capacity of 1.2 lakh tonnes per annum for Bilt. More importantly, SFI holds a concession for about 2.89 hectares of forest land by the state government of Sabah , which in turn has the remaining 2.2% stake in the company. Bilt plans to develop this forest land for the pulp requirements of its Indian operations. The longterm plans include putting up a pulp plant.

The pulp plant of 4.5-5 lakh tonne per annum capacity will be set up through a brownfield expansion in SFI, which, given the current costs, would mean an investment to the tune of $500 million. Pulp production in Malaysia is estimated to be cheaper compared to India .

Bilt vice-chairman and managing director Gautam Thapar said, “This acquisition is a strategic fit into our growth plans towards retaining leadership in India and growing our presence in the region.

Bilt, which currently has a capacity of five lakh tonnes of paper per annum, is in the process of a brownfield expansion that would take its capacity to 8.5 lakh tonnes in three years. With the addition of capacity from SFI, Bilt will have a total capacity of 10 lakh tonnes per annum of paper.

SFI, which had a turnover of $107 million for the financial year ending June 2005, is a profitmaking company with an employee base of about 900 workers. For FY05, it recorded a net profit of $9.6 million with a tangible net worth of $335.6 million. The company, however, had reported loss in the third quarter of the current year ending March. Bilt group director(finance) B Hariharan said, “Pulp and paper is not the core business of the current promoters. With the right kind of technology and industry know-how, we will be able to utilise the infrastructure better.”

The financial figures of SFI would reflect in the consolidated results of Bilt from the next financial year — FY07 — which starts in July. The Bilt stock closed the day 1.5% up at Rs 120.15. Talking about the prospects of the paper industry in India , Thapar said, “There is scope for increasing prices by about 1-2% in the near future.”