PE funds on a paper chase in India

MUMBAI: Private equity investment in Indian paper companies is rising steadily and could grow further as the sector prepares to spend Rs 13,000 crore in the next three years to expand capacity. A growth rate of close to 8% and growing deficit in the supply of consumer paper products have also fuelled interest of foreign companies in this sector.

IFC, the private sector investment arm of the World Bank, and Goldman Sachs are some of the investors that have picked up equity stakes in paper companies. The stake sale by paper companies has been mostly to part-finance capacity expansion plans.

“IFC has been integral in assisting us in our (capacity expansion) plans,” says Shreeyash Bangur, vice-president at AP Paper Mills. IFC, which invested $35m in AP Paper to partly meet its Rs 554 crore mill development plan, is again scheduled to invest about Rs 23 crore in enabling the company to buy a high-end paper machine.

AP Paper is also scheduled to raise $20m FCCBs through the State Bank of India for funding its new machine that will increase its capacity by an additional 80,000 tonnes.

Indian paper companies, including Ballarpur Industries (Bilt), Tamil Nadu Newsprint, JK Paper and West Coast are on course to adding over 20 lakh tonnes in capacity to the current total capacity of over 60 lakh tonnes, over a three-year period at an investment of Rs 13,000 crore.

Earlier, IFC invested Rs 100 crore in JK Paper, while Goldman Sachs put in $17m (about Rs 76 crore) through its investment arm in Mauritius. “Like in other paper projects, IFC has partnered us to part-finance our expansion programme... they are long term investors who see great potential in emerging markets,” said a senior executive. Funds from the investment would be for JK Paper’s 60,000 tonne packaging board project in Gujarat.

The growth in the paper sector has also brought in newer players. Bangalore-based Whitefield has announced its intention to build a 200,000-tonne paper plant in Andhra Pradesh, at an estimated cost of Rs 1,200 crore.

The new unit, scheduled for commercial production by ’08, would export 80% of its products and sell only 20% in India. It would import its entire pulp requirement from Elof Hanson, one of the world’s largest pulp suppliers.