Aion, Apollo to invest $157m into Avantha Holdings – report
Aion Capital Partners and Apollo Global Management are reportedly investing INR9.6 billion ($157 million) in Avantha Holdings, the holding company of the $4 billion conglomerate Avantha Group. Avantha is also in talks to raise $100 million from KKR, an existing investor in the group’s Avantha Power & Infrastructure business.
Avantha Holding (AHL) is wholly-owned by the group founder and chairman Gautam Thapar and his family. It owns 42.4% in listed power equipment company Crompton Greaves (CG) and close to 75% of Avantha Power, held directly and via CG.
According to a Brickwork Ratings note, AHL proposes to issue principal protected market linked non-convertible debentures (NCDs) of INR9.5 billion with a tenor up to six years, with a put and call option at the end of fifth year. The issue will be secured by equity shares of CG equivalent to 1.44x of the amount of the NCD issue. The proceeds of the NCD issue will be used to refinance existing debt.
According to provisional results for the financial year ended March 2013, AHL incurred a loss of INR2.06 billion, while total revenue was INR1.66 billion, down from INR2.19 billion the previous year.
AHL proposes to redeem the NCDs through liquidity events, including divestment of non-core assets, income from their investment and from refinancing.
According to The Economic Times, Aion and Apollo will subscribe to NCDs issued by AHL, the returns of which will be linked to the equity performance of CG. If the stock does not perform, the investors will receive a base return over and above the principal sum. In case the company outperforms, then a part of the upside will be shared with the investors.
Aion was established as a partnership between Apollo and ICICI Venture to pursue investment opportunities in special situations, including financial restructurings, recapitalizations, leveraged buyouts and promoter financings. It is in the process of raising a $550 million fund which is expected to close in the first quarter of 2014.
The KKR deal may have a convertible debt model with shares of group companies such as CG or listed paper manufacturer BILT as the underlying security. The firm has previously invested around $170 million in Avantha Power in 2010-11.
Speaking at the AVCJ India forum last week, B.V. Krishnan, managing director at KKR India, said the firm typically tends to take share-backed collateral because this is better for enforcement.
"The idea is to look at it as a solution which is long-duration and focused on promoters and business houses where we feel there is genuine equity value in the underlying business. It's not meant to be bridging or short tenor capital," he said.
Crompton Greaves has been hit by the slowdown in the power business and an increase in interest costs for foreign working capital and term loans taken for a string of global acquisitions.
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