KKR provides $100m in structured finance to India’s Avantha
KKR has agreed to provide $100 million in long-term financing to Avantha Group in order to help the Indian conglomerate pay down debt and continue investing in its businesses. The capital will come from KKR India Financial Services, the private equity firm’s domestic non-banking finance company (NBFC).
Avantha's interests span power systems and distribution, pulp and paper, food processing, energy and infrastructure, chemicals and IT services. According to AVCJ Research, KKR previously invested in one of these subsidiaries, Avantha Power & Infrastructure, paying approximately $124 million for a 20% stake across two transactions in 2010 and 2011.
This is the second time in three months that Avantha has sought third-party funding at group level. In December 2013, Aion Capital Partners and Apollo Global Management invested INR9.6 billion ($157 million) in Avantha Holdings, the group holding company. KKR was reported to be in talks with Avantha when news of the Aion deal emerged.
"This financing is a great opportunity for us to invest in Avantha Group's businesses in anticipation of an upturn in Indian industries. With this investment, we now have a comprehensive partnership that spans all the key businesses of the group," Sanyay Nayar, CEO of KKR in India, said in a statement.
KKR did not offer details of the financing structure, but The Economic Times reports that the private equity firm will subscribe to five-year callable securities, without the option of converting these instruments into equity. Returns are linked to the equity performance of Avantha's listed subsidiaries - paper manufacturer Ballarpur Industries and transformer manufacturer Crompton Greaves.
This investment structure bears similarities to that used by Aion, described by Brickwork Ratings as market-linked non-convertible debentures, secured against equity in Crompton Greaves. If the stock does not perform, the investor receives a base return over and above the principal sum. In the case of outperformance, part of the upside is shared with the investors.
Avantha, which claims to be worth $4 billion, is controlled by Gautum Thapar, its founder and chairman. Avantha Holdings reported a loss of INR2.06 billion for the year ended March 2013, compared to a profit of INR62.8 million for the previous 12 months, according to provisional results cited by Brickwork. This was mainly due to interest costs more than doubling to INR2.45 billion.
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