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ADM to invest Rs 80 cr in Rama Pulp

The Hong Kong-based distressed debt fund, ADM Capital, is close to investing in the Indian paper sector, which could give it an active equity interest in the country, joining a growing list of high profile foreign funds keen to restructure underperforming companies.

ADM Capital will invest about Rs 80 crore in the Nath group-promoted mid-sized paper company Rama Pulp & Papers, which will use the funds for capex and for future programmes, including an acquisition. ADM is learnt to have been selected from players like Bank of America, Actis and DBZ.

“We have spoken to ADM and things are expected to be finalised soon,” said Rama Pulp director Mahesh Mehta. The final ends could likely include the amount of equity stake that ADM Capital could hold in return for its investment. The Nath group currently owns about 73% equity stake in Rama Pulp. ADM Capital declined to comment on the issue.

Once the deal is tied up, ADM Capital will join a growing list of foreign hedge funds and private equity firms that have been cherry picking underperforming companies in India that they think have the potential to grow and churn profits in the next 4-5 years. Some of the funds that have targeted such companies are Citigroup, Standard Chartered, WL Ross, Clearwater and Eight Capital. “The upside for funds such as ADM Capital would be to take part in a growing sector such as paper, which mirrors the GDP growth of 9%,” said a banker.

Formed in 1996, ADM Capital advises investment funds that make principal investments in distressed companies and special investment opportunities. ADM Capital had earlier joined Asian Development Bank to raise a $138-million fund to rehabilitate distressed companies in Asia. India’s distressed assets are estimated at $55 billion (about Rs 2,53,000 crore). Distressed debt funds typically focus on companies that have either filed for bankruptcy or are likely to do so in the near future. The fund gets involved in restructuring to pull the company out from bankruptcy. Distressed debt firms often forgive the debt obligations of the company in return for equity.

Rama Pulp had to shut its unit in Vapi on directions from the Gujarat High Court due to environmental reasons. It earlier made paper from bagasse, a byproduct of sugar manufacturing. The company has since altered its production process, using waste paper as raw material.

The company plans to increase its installed paper capacity from 21,000 tonnes to 30,000 tonnes. “We are also interested in acquiring a newsprint plant to boost our presence,” said Mr Mehta, adding that this is part of the consolidation plan in the highly fragmented paper & newsprint industry. India consumes about 300,000 tonnes of newsprint annually, of which 85% is imported. Of late, foreign funds’ interest in the Indian paper sector has grown steadily.

Source : Economic Times

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