In a landmark private equity deal, the $3-billion Welspun Group has managed to secure up to Rs 2,250 crore investment in its three companies from Apollo Global Management, LLC, one of the leading asset managing companies in the world with assets worth $70 billion under its management. Group Chairman B K Goenka explains the contours of the deal to Shubhashish and the company's plans. Edited excerpts:
What will you do with the money from the deal?
Basically, $350 million will be invested in Welspun Corp, $150 million in Welspun Infrastructure and $60 million in Maxsteel. This is a fresh issue of equity and partly structured instruments of Global Depositary Receipts and Fully Convertible Debenture.
Will this lead to dilution in your holding in Welspun Corp?
Definitely. This will lead to two-three per cent dilution in Welspun Corp.
Where will this money be used?
It will be used in expansion of the steel and infrastructure business through Welspun Infratech. We want to become a slab manufacturer.
What are your plans for Maxsteel since you bought it from the Birlas for Rs 1,100 crore and now selling stake to Apollo?
We haven't sold the company to an outsider but to our group company Apollo, a 12.5 per cent stake. So, this is a consolidation. It is like, we want to be an iron ore to pipe company. Having a promoter-owned company to supply raw material to a pipe company in Welspun Corp is always in question regarding the arms length transactions, related party transactions, etc. So, once Apollo is there and making everything integrated, it makes the consolidation at Welspun Corp capture the whole value chain.
What would be Apollo's board representation now?
Over a period of time, Apollo will have two directors on the board of Welspun Corp and one director each in Welspun Steel and Welspun Infratech.
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It is a big thing. We have gone to the court. We are waiting for the judgment. As far as the production goes, there is a definite impact on production. We have gas coming from GAIL and Oil and Natural gas Corporation (ONGC).
Is it affecting profitability?
The gas coming from ONGC is at the old rates. But yes, there is definitely an impact on profitability. Right now, there is a loss of production and we are hoping for some relief from the court. At least, proportionate gas should be given to all industries. Why steel is being singled out?
Are you fully committed to your steel business or is the focus shifting to textiles, power and the infrastructure business?
In steel, we have a clear vision, to be an iron ore to pipe company. That is why we did the deal. In power sector, we are already expanding and this money will be used there. We are setting up solar power projects and have plans to produce 150 Mw from solar power in the next two years.
