PE fund KKR to invest $100 million in Gautam Thapar-owned Avantha Group

NEW DELHI: US-based private equity fund KKR has signed a deal to invest $100 million (Rs 630 crore) in Gautam Thapar-owned Avantha Group. People close to the development told ET that Avantha will use the funds to trim debt and infuse capital in group companies.

The deal, signed on Tuesday, is the second fund-raising move by Avantha in the last two months and KKR's (Kohlberg Kravis Roberts & Co's) third investment in the Indian entity.

"We have been partnering with the Avantha Group consistently over the past several years, beginning from our investment in Avantha Power," said Sanjay Nayar, chief executive, KKR India. "With this investment, we now have a comprehensive partnership that spans all the key businesses of the group."

Avantha's spokesperson declined comment.

The Avantha group will the use the money to repay the short-term debt of Avantha Holdings, the holding company of the $4-billion diversified Avantha Group, a person familiar with the matter said. In December, the group had raised $150 million (Rs 960 crore) from AION Capital, a PE fund owned jointly by ICICI Venture and Apollo Global Management.
KKR had earlier invested about $125 million ( Rs 600 crore) in two tranches in Avantha Power and owns roughly 20% stake in the company.

"Gautam has built high-quality franchises, and KKR with this creative and flexible financing done through our alternative credit platform, is excited with this enhanced partnership," Nayar said.

Avantha Holding owns 42.4% stake in transformer maker Crompton Greaves, 49.4% in India's largest paper manufacturer Ballarpur Industries (BILT), and a 75% stake in Avantha Power, which it jointly owns with Crompton Greaves.

According to the person quoted earlier, KKR's funding will be linked to the equity performance of listed companies - Crompton Greaves and BILT. Nayar, however, declined to divulge the financial structure.

The investor will subscribe to five-year callable securities issued by Avantha Holdings for which the returns will be linked to the equity performance of the listed entities, the same person said.

The nature of KKR's investment product - known as 'long-dated callable securities' - is becoming increasingly popular among promoters with holding companies as it allows them to match the maturity of their liabilities with the time needed for their businesses to reach scale and size. The instrument gives flexibility to the investor to call options after a certain period linked to the performance of the listed entities.

After a stipulated period, if the shares under-perform, then KKR will receive an assured return over and above the principal investment. Typically, the returns of these structured investments range between 15% and 18%. If the share price outperforms, then a part of the upside will be shared between the investor and the promoters.

However, KKR will not be entitled to convert these financial instruments into equity shares of the holding company or the listed companies.

Earlier, KKR had funded Avantha Power and Infrastructure, which built a 1,200 mw power plant and is now doubling its capacity. The company has been forced to postpone its public issue due to stock market volatility.