Apollo buys into pipes as Indian deal sizes rise

The US private equity firm's backing of an oil and gas pipe-maker highlights two recent trends in the Indian private equity market.

Private equity firms have been deploying larger sums of capital lately in India. Coming on the heels of Warburg Pincus' plans to invest $100 million in Continental Warehousing and Navis Capital's $100 million investment in Racing Stripes, New York-headquartered Apollo Global Management this week committed to investing INR13.05 billion (€201.3million; $292 million) in Indian pipe manufacturer Welspun (WCL).

According to a company statement, INR7.88 billion of Apollo’s investment will go to buying fully or compulsorily convertible debentures which will carry a coupon of 5 percent and will be converted within 18 months, according to a statement. The remainder will be invested through non-voting global depository receipts. These instruments will be converted /subscribed at INR225 per share.for a 13.3 percent stake in the company

Additionally, WCL and Apollo will also buy out the entire promoter stake in Welspun Maxsteel (WMSL), a gas-based merchant direct reduced iron (DRI) producer based in India and maker of high-end steel slabs used in the oil and gas line-pipe industry.

As part of the transaction, WCL will buy 87.5 percent of WMSL equity for INR 8.05 billion and Apollo will purchase 12.5 percent for INR 1.4 billion. Apollo will also invest an additional INR 1.3 billion in the company for capital expenditure.

Apollo and its affiliates are considering an investment of up to INR 6.75 billion in Welspun Infratech (WITL), a Welspun affiliate, in the form of debt, equity or a combination of the two, according to the statement.

“Welspun represents a leading global franchise that operates at the intersection of energy and metals – two of our core verticals – and we are very enthusiastic regarding the prospects of the company,” said Joshua Harris, managing partner and co-founder of Apollo.

In addition to increasing deal sizes, Apollo's transaction speaks to another noticeable trend in India's private equity landscape: the increasing interest shown by private equity in the country's heavy industry sector.

In addition to Warburg Pincus' investment in warehousing and freight station operator Continental Warehousing, TA Associates made an unusual departure from its strategy of investing in technology, financial and business services, healthcare, and consumer industries in May by investing $40 million for a 15 percent stake in mining equipment manufacturer Tega Industries.