23 OCT, 2012, CR SUKUMAR, ET BUREAU
HYDERABAD: An unheralded company from Hyderabad has agreed to buy Rutgers, a Belgium-based manufacturer of coal tar pitch, for 702 million, or 4,900 crore, in the biggest overseas acquisition this year by a private Indian company.
The all-cash deal highlights the ambitiousness of Rain Commodities, which in June 2007 bought calcined petroleum coke manufacturer CII Carbon in the US for nearly $600 million, or Rs 2,400 crore then.
The main use of coal tar pitch and calcined petroleum coke is to make electrodes for aluminium smelters. Rutgers is the world's second-largest coal tar pitch producer, and Rain Commodities the second biggest in the calcined petroleum coke business globally.
Rain, which is run by its reclusive managing director Jagan Mohan Reddy, is acquiring the stake from private equity firm Triton Partners through CII Carbon.
The markets, however, were unimpressed with the deal, and sent the Rain stock tumbling 4.5% to 41.25 on the Bombay Stock Exchange while the benchmark Sensex gained nearly 0.6%.
The company insisted that there is a severe global shortage of both coal tar pitch and calcined petroleum coke, of which half a tonne is needed to produce one tonne of aluminium.
Fund-Raising Early Next Year
"Expanding into tar distillation business constitutes both product and geographical diversification to Rain Group and provides vertical depth within its core business," the company said a statement.
Rain has appointed Citibank and Goldman Sachs to raise e533 million in long-term bonds to fund the acquisition, Chief Financial Officer T Srinivasa Rao told ET. Internal cash of e169 million will also part-finance the deal. The fund-raising will take place around the time of the conclusion of the deal, which will be in the first quarter of 2013.
For the year ended December 2011, Rain Commodities posted net profit of Rs 664 crore on sales of Rs 5,620 crore. At the end of June 2012, the company had cash reserves of Rs 1,645 crore, Rao said.
Rain Commodities also makes and markets cement, mainly in south India, under the Priya brand. It operates two plants with a total capacity of 3 million tonnes in Andhra Pradesh.
Five months ago, Pavas Pethia and Sanjay Jain of brokerage Motilal Oswal were almost prescient in their analysis of Rain Commodities. They wrote on May 8 that of the cash and equivalent of Rs 1,100 crore at the time, Rs 690 crore was in the current account. "The large accumulation of idle cash in the current account is unusual, but this could be in preparation for another acquisition."
Rutgers, a 160-year-old manufacturer of basic and specialty chemicals, reported gross revenues of e831 million during 2011.
Rao said having signed the share purchase agreement with Rutgers, Rain Commodities will now begin the process of obtaining approvals from competition regulators from three countries - US, Norway and Russia, where Rutgers has major sales operations.
Rutgers' latest step in expanding its business internationally was the formation of the joint venture Severtar with Russian steel producer Severstal in March 2012. The joint venture is currently establishing production facilities north-east of Moscow to serve the growing aluminium markets in the Middle-East.
"Our investments in existing sites and new facilities in the Netherlands and Russia provide for new innovative products and further strengthened market positions. Rutgers is today well positioned to continue to prosper and we believe that Rain CII has the credentials to and will be a good owner for Rutgers," Chief Executive Henri Steinmetz was quoted as saying in a statement.
Rain Commodities bought CII Carbon a couple of months after it failed to buy the then world's largest calcined petroleum coke producer, Toronto-based Great Lakes Carbon USA. Great Lakes Carbon was bought by Oxbow Carbon, the raw materials supplier and marketing partner of Rain Commodities, thereby straining the relationship.
The CII Carbon buy helped Rain become the world's second-largest producer of calcined petroleum coke with a share of nearly 9% while global leader Oxbow Carbon has a share of little over 12%.
HYDERABAD: An unheralded company from Hyderabad has agreed to buy Rutgers, a Belgium-based manufacturer of coal tar pitch, for 702 million, or 4,900 crore, in the biggest overseas acquisition this year by a private Indian company.
The all-cash deal highlights the ambitiousness of Rain Commodities, which in June 2007 bought calcined petroleum coke manufacturer CII Carbon in the US for nearly $600 million, or Rs 2,400 crore then.
The main use of coal tar pitch and calcined petroleum coke is to make electrodes for aluminium smelters. Rutgers is the world's second-largest coal tar pitch producer, and Rain Commodities the second biggest in the calcined petroleum coke business globally.
Rain, which is run by its reclusive managing director Jagan Mohan Reddy, is acquiring the stake from private equity firm Triton Partners through CII Carbon.
The markets, however, were unimpressed with the deal, and sent the Rain stock tumbling 4.5% to 41.25 on the Bombay Stock Exchange while the benchmark Sensex gained nearly 0.6%.
The company insisted that there is a severe global shortage of both coal tar pitch and calcined petroleum coke, of which half a tonne is needed to produce one tonne of aluminium.
Fund-Raising Early Next Year
"Expanding into tar distillation business constitutes both product and geographical diversification to Rain Group and provides vertical depth within its core business," the company said a statement.
Rain has appointed Citibank and Goldman Sachs to raise e533 million in long-term bonds to fund the acquisition, Chief Financial Officer T Srinivasa Rao told ET. Internal cash of e169 million will also part-finance the deal. The fund-raising will take place around the time of the conclusion of the deal, which will be in the first quarter of 2013.
For the year ended December 2011, Rain Commodities posted net profit of Rs 664 crore on sales of Rs 5,620 crore. At the end of June 2012, the company had cash reserves of Rs 1,645 crore, Rao said.
Rain Commodities also makes and markets cement, mainly in south India, under the Priya brand. It operates two plants with a total capacity of 3 million tonnes in Andhra Pradesh.
Five months ago, Pavas Pethia and Sanjay Jain of brokerage Motilal Oswal were almost prescient in their analysis of Rain Commodities. They wrote on May 8 that of the cash and equivalent of Rs 1,100 crore at the time, Rs 690 crore was in the current account. "The large accumulation of idle cash in the current account is unusual, but this could be in preparation for another acquisition."
Rutgers, a 160-year-old manufacturer of basic and specialty chemicals, reported gross revenues of e831 million during 2011.
Rao said having signed the share purchase agreement with Rutgers, Rain Commodities will now begin the process of obtaining approvals from competition regulators from three countries - US, Norway and Russia, where Rutgers has major sales operations.
Rutgers' latest step in expanding its business internationally was the formation of the joint venture Severtar with Russian steel producer Severstal in March 2012. The joint venture is currently establishing production facilities north-east of Moscow to serve the growing aluminium markets in the Middle-East.
"Our investments in existing sites and new facilities in the Netherlands and Russia provide for new innovative products and further strengthened market positions. Rutgers is today well positioned to continue to prosper and we believe that Rain CII has the credentials to and will be a good owner for Rutgers," Chief Executive Henri Steinmetz was quoted as saying in a statement.
Rain Commodities bought CII Carbon a couple of months after it failed to buy the then world's largest calcined petroleum coke producer, Toronto-based Great Lakes Carbon USA. Great Lakes Carbon was bought by Oxbow Carbon, the raw materials supplier and marketing partner of Rain Commodities, thereby straining the relationship.
The CII Carbon buy helped Rain become the world's second-largest producer of calcined petroleum coke with a share of nearly 9% while global leader Oxbow Carbon has a share of little over 12%.
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