Ballarpur Industries in talks to sell Malaysian arm to China's Nine Dragons

MUMBAI: Gautam Thapar-controlled Ballarpur Industries (BILT) is in talks with Chinese giant Nine Dragons Paper Group to sell its Malaysian forest arm, Sabah Forest Industries, in a $350-million deal, said three people with direct knowledge of the matter.

Reviving efforts to divest what was once a crown jewel is yet another attempt by the company to deleverage the BILT balance sheet.

BILT, India’s largest maker of writing and printing paper, has been in talks with Nine Dragons for some time now and the discussions are likely to lead to a binding agreement soon, the sources said.


“Negotiations have been ongoing. There have been issues like valuation mismatch but hopefully they will get sorted now. Thapar himself was in Malaysia a few days back and is fronting bilateral negotiations for his company,” said one of the sources cited above. But there is still no guarantee that discussions will lead to a transaction, cautioned sources.

When contacted, Nine Dragons said they had looked at Sabah, but not proceeded further. “We had studied the subject company. However, we have not proceeded further on it,” a Nine Dragons spokesperson told in an emailed reply. A detailed mail seeking comments, sent to BILT on Friday, remained unanswered till the time of going to the press on Sunday.

In 2007, BILT has acquired Sabah for about $261million, in what was the first significant overseas acquisition by an Indian paper company.

Sabah makes paper and paper-related products. It also offers solid wood-related products such as rough and chemically treated sawn timber and panel-based products, including dried veneer and raw plywood, according to its website.

The company exports its products to Iran, Syria, Yemen, South Africa, Jordan and Saudi Arabia. In September 2015, BILT had announced that it entered into a definitive share sale agreement for selling its 98.1% equity in Sabah to Pandawa Sakti (Sabah), the arm of a local business group Pandawa Sakti. Since then, the deal date has been postponed thrice and finally fell through. The potential buyers -- a consortium of Malaysian and Chinese buyers -- faced difficulties to close the transactions after commodity prices dropped and financing became difficult.

Founded in 1995, privately held Nine Dragons Paper Group is one of the world's largest paper and related products maker. The company's production capacity is the largest environmentally-friendly recovered manufacturing in terms of production capacity, as per its website. It has a total sales volume of 7.1million tonnes as on December 31, 2016, representing an increase of 6.2% compared with the corresponding period last year, its annual report showed. BILT, the flagship firm of Avantha Group, will repay its debt using funds raised through this transaction, sources said.

BILT has a consolidated debt estimated to be in excess of Rs 6,000 crore. BILT Graphic Paper Products, a step-down subsidiary of BILT, owns four of the six paper manufacturing units housed in the parent company, which are located at Ballarpur, Bhigwan and Ashti in Maharashtra and at Sewa in Odisha. Two of the four units have shut down production while the other two are operating at 30% capacity due to fund constraints. A consortium of lenders led by Axis Bank has proposed to invoke the SDR at BILT Graphic Paper Products, which has loans amounting to over Rs 4,000 crore.

The other lenders in the consortium include ICICI Bank, Standard Chartered, Rabo, Goldman Sachs and IndusInd Bank. The firm had looked to raise debt after talks to sell two paper factories in Maharashtra to JK Paper Ltd broke down last November because of valuation disagreements.

Subsequently, this March Edelweiss Asset Reconstruction Co, acquired more than half of BILT Graphic’s secured debt. The ARC since then initiated discussions with parent Ballarpur Industries Ltd to restructure outstanding loans by extending the repayment period and to offer additional credit to help the papermaker tide over the current cash flow mismatch. There is also a plan to infuse as much as Rs 400 crore into the cash-strapped company.

According to analysts, only asset sale would help the company get away from the heavy debt burden that it faces. “The company may yet secure debt and equity funding from financial institutions and investors to address its upcoming debt repayments, but it is unlikely that such additional financing alone would be adequate to address its debt maturities of over Rs 2,500 crore over the next three years, in our view. Even if we assume an improvement in free cash flows at BILT, we estimate that asset sales or significant refinancing would be required to meet its repayment obligations over the next three years,” Fitch Ratings said in a note on March 20.