Bain Capital makes India debut investment

After setting up a dedicated India office in May 2008, Bain Capital has been quiet on the deal front, as a result of the financial crisis. However, the team led by Amit Chandra was evidently quite busy over the holidays as it closed on its first deal, with $124 million to be invested in Himadri Chemicals, India’s largest and one of the dominant global companies in coal tar pitch and advanced downstream chemical products. An initial investment of around $54 million gives the private equity firm 15.39% of the company, hitting the benchmark for a mandatory tender offer for an additional 20% stake, which will be decided by a shareholder meeting at the end of January.

On the face of it, the investment appears to come out of left field; however, upon closer examination, it does bear the markings of a typical Bain investment – one in which the firm takes a significant minority stake, giving them reasonable influence and the ability to add strategic value in terms of expansion.

Niche market, big opportunities

Coal tar pitch has a variety of uses, from the making of aluminum to naphthalene balls that repel insects, making tires to waterproofing, and as a binding agent for the manufacture of high-quality electrodes. Himadri’s chemical capabilities also extend to coal tar-based pipeline coating and enamels essential to infrastructure projects and underground pipes of various types. A source with knowledge of the deal said that the firm was impressed by the company’s mastery of the technology of coal tar’s many applications.

Bain Capital said in a statement, “We are excited about having Himadri as our first investment in India. We are particularly impressed with the quality of visionary leadership provided by the family and the depth of a truly high quality professional management team that ensures high standards of operational excellence.” Anurag Choudhary, CEO of Himadri, also said: “We welcome Bain Capital into the Himadri family, and hope to leverage their investment and value addition expertise, proven with a number of leading global companies, to help take Himadri to a global leadership position.”

Score one for India private equity

Publicly, the company has explained that it is raising capital from Bain to, “Complete the execution of an ambitious plan to nearly triple its capacity in most of its core and some downstream higher-value-added products, expand captive/merchant power capacity, and expand geographically into China and other markets.”

Interestingly, this is one of the few deals of late in which a promoter of an Indian company heavily courted by banks and alternative investors alike has chosen private equity over India’s hotter-than-hot capital markets. During the recent 2009 AVCJ India Forum, one of the recurrent themes was discussion of private equity’s largest competitors: other forms of capital, including sovereign wealth funds, QIPs, PIPEs, banks and all types of alternative investors. Chandra himself noted on a panel that the trend will change only at the point that “some of us can demonstrate the ability to grow companies better than others.”

It is understood that, with UBS appointed as advisor to Himadri in the search to find an appropriate partner and strategy for capitalraising, private equity, and Bain in particular, won out due to management’s desire for strategic value rather than the highest valuation. The company currently counts CVC International and the International Finance Corporation (IFC) as key stakeholders, which also may have swung the vote. It is unclear whether either will be exiting their position as a result of Bain’s investment.

An executive close to Himadri said that Bain, which has more than $60 billion in assets under management, was an attractive partner because of the firm’s longstanding investment experience and reputation for bringing companies into a global leadership position. After a shareholder meeting to be held at the end of the month, the private equity firm will likely have a 35% stake in the company, and the aggressive expansion will then begin, including plans to open up a manufacturing facility in China, ramp up exports to the Middle East and the rest of Asia, and in time look for M&A opportunities. It is an investment that is expected to play out over a longer-term horizon of seven to ten years, and one that will hopefully stand as a case study for the value add of private equity players

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• Topics
• Industrials
• South Asia
• Expansion
• Buyout
• International Finance Corporation
• Amit Chandra
• Bain Capital Asia
• Citigroup Venture Capital International Asia