Private equity firm AION Capital Partners has walked away with a bountiful harvest by turning around steelmaker JSW Ispat Special Products through a first-of-its-kind leveraged finance deal under India’s bankruptcy law.
AION had, in 2018, teamed up with billionaire Sajjan Jindal-led steelmaker JSW Steel Ltd to acquire Monnet Ispat as per a debt resolution process under the Insolvency and Bankruptcy Code (IBC).
The National Company Law Tribunal (NCLT)—a quasi-judicial body that oversees bankruptcy cases—approved the resolution plan for Monnet by the AION-JSW Steel consortium in July 2018. Monnet was later renamed as JSW Ispat. The consortium made a bid of Rs 3,700 crore, which meant a 75% haircut for lenders to JSW Ispat.
As per the resolution plan, JSW Steel and AION infused Rs 1,000 crore into JSW Ispat through special purpose vehicles Creixent Special Steels Ltd and JTPM Atsali Ltd via a combination of equity, convertible and debt securities. Of this, AION’s investment is pegged at Rs 875 crore while JSW Steel infused the remaining amount as a new set of creditors led by IndusInd Bank replaced the old lot.
AION, which was a joint venture of US-based Apollo Global and India’s ICICI Venture before the partnership ended last year, has now sold its entire direct stake of 21.2% in JSW Ispat. It offloaded the stake on the secondary market and fetched about Rs 360 crore. However, it continues to hold about 30% stake in JSW Ispat through Crexient.
Creixent currently owns 225.93 million shares in JSW Ispat and 8.5 million convertible preference shares. This translates into a 56.95% stake. AION owns 52% of Creixent while JSW Steel holds 48%.
Creixent hasn’t converted the preference shares yet because it would otherwise cross the Securities and Exchange Board of India’s threshold of maximum 75% promoter holding in a listed company.
The stake sale has helped AION make about 3.5 times returns on the blended cost of investment over three years. This translates into an internal rate of return (IRR), or annualised return, of about 52-53%, as per estimates by The Capital Quest.
PE and venture capital firms typically chase about 20-30% IRR. However, these benchmarks may vary depending on the nature of investment. Development finance institutions and strategic investors may follow different benchmarks.
An email query sent to AION Capital seeking comment on the rationale for the stake sale, returns estimate, deal structure, and warrant conversion did not yield a response till the time of publishing this report.
However, a person directly aware of the deal contours said on the condition of anonymity that this was a very complex structure and received many regulatory exemptions. “It is a very rare instance of a private equity firm leading a stressed transaction through a levered deal,” the person said.