(Bloomberg) -- Indian conglomerate Nirma Ltd. plans to sell about 40 billion rupees ($596 million) of bonds to fund the purchase of a local cement business from LafargeHolcim Ltd., according to people familiar with the matter.
Nirma, known for its eponymous washing detergent brand, is working with banks including Barclays Plc, Credit Suisse Group AG and IDFC Bank Ltd. on the planned bond offering, the people said, asking not to be identified as the information is private. The closely held company agreed to pay about 82 billion rupees for the LafargeHolcim assets, the people said.
The Indian company will buy three cement plants and two grinding stations with capacity to produce about 11 million metric tons per year, according to a LafargeHolcim statement Monday, which said the deal values the business at $1.4 billion including debt. Nirma won the bidding after beating rivals including Piramal Group, backed by billionaire Ajay Piramal, and Indian building-material producer JSW Cement Ltd., the people said.
Nirma made a name for itself in the 1980s when it battled Unilever’s local brand “Surf” for dominance of the Indian detergent market. The LafargeHolcim deal puts the company in competition with Indian tycoon Kumar Mangalam Birla’s UltraTech Cement Ltd. in the world’s second-biggest producer of the building material.
“The deal is a big leap forward for the Nirma group,” said Ravi Sodah, an analyst at Elara Securities India Pvt. “The key thing to watch out for now is the pricing behavior of the entrant under the new management, and how that changes the cement pricing dynamics in the eastern region of India.”
Nirma was a one-man operation set up in 1969 when first-generation entrepreneur Karsanbhai Patel started door-to-door sales of his detergent powder brand at 3 rupees a kilogram. That undercut the cheapest brand at the time by almost 77 percent, according to Nirma’s website.
The company also makes soap, salt and industrial products including soda ash and caustic soda. It reported a consolidated net income of 7.6 billion rupees for the year ended March and net sales of 72.4 billion rupees, according to a report last month by S&P Global Ratings’s local arm Crisil Ltd.
The acquisition, which would be Nirma’s biggest, values the cement assets at an enterprise value of $126 per ton, in line with recent deals in the industry, Morgan Stanley said in a report Monday. Nirma has already invested 13 billion rupees to set up a cement plant in Rajasthan in northwestern India, which has an annual capacity of 2.28 million tons and was commissioned in November 2014, according to the Crisil report.
Nirma plans to start the bond offering in September, the people with knowledge of the matter said. It is considering selling debt in four tranches, with the longest-dated portion maturing in five years, according to the people. The Indian company is also weighing bringing in a minority partner to join it in the LafargeHolcim acquisition, one of the people said.
Arpwood Capital Pvt and Citigroup Inc. advised LafargeHolcim on the sale, the people said. LafargeHolcim will still have a presence in India through its subsidiaries ACC Ltd. and Ambuja Cements Ltd., which have a combined capacity of more than 60 million tons, according to Monday’s statement.
Representatives for LafargeHolcim and Piramal Group declined to comment, while a spokesman for JSW Cement said he couldn’t immediately comment. A representative for Nirma didn’t immediately respond to e-mails seeking comment.
(Corrects spelling of Birla’s name in fourth paragraph.)
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