Ballarpur Industries Ltd’s (BILT) decision to exit its operations in Malaysia brings the curtains down on one of the most ambitious overseas expansion plans in the paper industry, conceived about a decade ago.
BILT, part of the Avantha Group, announced on Thursday that its subsidiary Ballarpur Paper Holding BV has agreed to sell its entire 98 per cent stake in Sabah Forest Industries Malaysia to Pandawa Sakti (Sabah) for $500 million.
B Hariharan, Group Director (Finance), Avantha Group, told
Pandawa Sakti gets access to Sabah Forest’s plantations, a pulp mill of 240,000 tonnes a year, a paper mill as part of an integrated complex with a saw mill, and a veneer and plywood factory.
Pandawa Sakti and a Chinese partner plan to establish a one million tonne a year capacity pulp mill.
The transaction is to be completed over the next three months.
Ambitious takeoverIn 2007, BILT had acquired Sabah Forest Industries for $261 million. It got a 140,000-tonne-a-year paper mill, a 120,000-tonne pulp mill and a crucial 2.89-lakh hectare forest concession up to 2094, giving it access to pulp wood raw material.
It had plans to list on the London and Singapore stock exchanges but due to adverse market conditions, valuations were not up to expectation, forcing BILT to scuttle its plans.
Since 2007, BILT has incurred capital expenditure of about $1 billion on expansions in India and Malaysia. The company had invested over $450 million in the Sabah Forest project alone.
BILT could not go in for an IPO in India either or increase equity due to unfavourable market conditions. As a consequence, the “purpose of Sabah Forest acquisition did not happen,” said Hariharan.
The forest resource had then been an important consideration because domestic wood availability was low and pulp prices were cyclical. Today, BILT “needs to take a call on pulp” as it is a paper company. It can look at other cost efficient sources for pulp.
Lowering debtThe sale proceeds from Sabah Forest will predominantly be used to bring down BILT’s debt.
The company’s total debt stands at about ₹7,000 crore, including about ₹1,200 crore of perpetual bonds equivalent to equity. The company hopes to bring down debt by about ₹2,000-2,200 crore, said Hariharan.
Over the next two-three years, the group will concentrate on strengthening its domestic paper business. The focus will be on de-leveraging the balance sheet and there will not be any capital expenditure. BILT will focus on growth after consolidating over the next two-three years, said Hariharan.