Birla to sell 5% finance unit stake before listing

Mumbai: Indian billionaire Kumar Mangalam Birla’s group may sell a 5 per cent stake in its financial services unit to help raise capital, providing a valuation gauge for a business it plans to list next year.
The $41-billion apparel-to-aluminum conglomerate sees financial services as the next growth area with traditional businesses such as cement and chemicals expanding at a more subdued pace. Securing cheaper financing for the lending unit was one of the key motivations behind a group restructuring, announced last week, that would combine Grasim Industries and Aditya Birla Nuvo into a company with $9 billion in revenue. The proposal triggered a stock rout in both the merging entities.
There is “a provision for raising some primary capital as part of the merger” between Grasim and Aditya Birla Nuvo, according to Saurabh Agrawal, Aditya Birla Group’s chief strategy officer. “For financial services, the requirement is capital. If somebody comes to us and gives us very attractive terms, then we will evaluate it.”
Ashish Adukia, head of group corporate finance, said that a Rs156 billion ($2.3 billion) valuation for Aditya Birla Financial Services, estimated by Religare Capital Markets in an August 12 report, seemed low. He declined to comment further on the unit’s value.
The group is seeking to raise at least $200 million through the stake sale, according to people familiar with the matter, who asked not to be identified because the information is private. The conglomerate will consider selling around a 5 per cent stake in the unit, for which Aditya Birla Nuvo is currently the holding company, and is open to sovereign funds as well as private equity firms, Adukia said.
Opportunistic
“We can do this only towards the end of the merger scheme,” Adukia said. “It’ll be totally opportunistic, frankly.” Aditya Birla Nuvo rose as much as 3.1 per cent on Wednesday trading in Mumbai, the benchmark S&P BSE Sensex traded up as much as 0.3 per cent.
Credit growth at the financial-services business has increased to Rs277.3 billion as of March from Rs18.50 billion in 2011, Adukia said. The business needs access to rs10 billion annually for a couple of years, he said.
Aditya Birla Nuvo has invested around Rs60 billion in the financial-services unit, while Birla has invested around Rs25 billion in the holding company, according to Adukia. The billionaire owner said on August 11 that a listing of the lending arm is expected by June.
The merged entity will have a 57 per cent stake in the finance business, the owners will have a 17 per cent stake and the rest will be held by the public, according to an August 11 presentation on Grasim’s website.