BILT in $261 mn Malaysian buy

The acquisition will reduce its raw material cost by half.

Ballarpur Industries Ltd (BILT), India's largest paper-maker, today announced its acquisition of paper and pulp company Sabah Forest Industries (SFI) in Malaysia for an enterprise value, including the working capital, of $261 million.

The acquisition, according to the company, will reduce its raw material cost by half.

Coupled with an expansion that BILT is embark on later this year, it will double the company's total paper capacity to 1 million tonnes in three years and place it among the top ten paper companies in Asia excluding Japan, which is home to some very large companies.

Sabah, part of Malaysia's Lion Forest Industries, has a net worth of $330 million, paper capacity of 144,000 tonnes a year and pulp capacity of 120,000 tonnes a year. Its acquisition will provide BILT access to 2,89,000 hectares of forest land.

The deal will put BILT on the road to an additional $500 million investment in the Malaysian operation "" in forestation and setting up of a pulp mill with a capacity of close to 500,000 tonnes a year.

Under the deal, BILT, along with JP Morgan, the investment banker that identified the acquisition, will buy 97.78 per cent stake in Sabah. The combine needs to pay $180 million upfront and the rest over the next year and a half.

BILT, which floated a foreign currency convertible bonds issue of $45 million last year, has a little over Rs 500 crore worth of cash in its books.

"The cash is there," said the company's Vice-Chairman and Managing Director Gautam Thapar at a press conference in New Delhi.

According to a company insider, the financing of the deal may be in the debt-equity ratio of 1:2. In that case, $120 million will have to be provided upfront as equity. Of the equity portion, 20 per cent will be brought in by JP Morgan.

"We will begin the due diligence for SFI and this is expected to be completed in the next 120 days," said Thapar, who projected a double-digit growth in revenues and profit for his company over the next 10 years.

He said the SFI deal was "an insurance for future growth" for BILT, which at present buys its raw material.

Apart from the pulp and paper mill, Sabah's assets include a jetty, a power plant facility and a steam generation facility.

According to Thapar, Sabah produced at almost full capacity last year and sold all of its produce. However, he added: "It is not an asset that is well run. They have not made the required investment in plantation."