Sanmar group buys Egyptian co for Rs 900 cr

The Sanmar Group today announced two separate international acquisition agreements - one for a chemicals business of an Egyptian company for $200 million (Rs 900 crore) and another for a 80 per cent stake in a German auto components company for 16 million (Rs 93 crore).

The chemicals business belongs to Trust Chemical Industries based in Port Said, Egypt. It owns a caustic soda plant with a capacity of 2,00,000 tonnes per annum, which started operations a little over a year ago. The plant also has facilities installed to manufacture chlorine-based products such as hydrochloric acid, chlorinated paraffin wax, sodium hypochlorite and ferric chloride.

"On completing the acquisition, the Sanmar Group would evaluate the possibility of manufacture of further products at Port Said, such as ethylene dichloride (EDC) and vinyl chloride monomer (VCM) using the chlorine available," according to a notification to the stock exchange by Chemplast Sanmar, the group's only listed company.

Speaking to Business Line about the acquisition, the group's Chairman, Mr N. Sankar, said that both the acquisitions would be done through two separate companies set up for the purpose. Chemplast Sanmar will not invest in either of the acquisitions. Mr Sankar noted that Chemplast has its plate full with a Rs 1,000-crore greenfield PVC project at Cuddalore.

Mr Sankar also said that production of EDC and VCM at Port Said was also a long term idea. For the present, the Egypt business would be run as a separate entity, headquartered at Port Said.

Explaining the rationale behind the acquisition, Mr Sankar said that power costs in Egypt were very low. Therefore, the unit would remain very competitive in the highly cyclical caustic soda industry. Asked why the existing promoters were selling off the one-year-old unit, Mr Sankar observed that they were primarily in textile business and were not prepared to make the continuous investments that a chemical unit called for.

Funding

On the funding of the acquisitions, Mr Sankar said that the Group had appointed Ernst & Young Pvt Ltd to advise it on structuring the transaction and raising resources.

Chemplast Sanmar, which is the Group's existing chemical venture in India, is currently involved in a significant capital expenditure programme towards conversion of the caustic soda facilities at Mettur to membrane process, installation of a coal-based power plant of 50 MW capacity at Mettur, and setting up of a greenfield PVC manufacturing facility at Cuddalore with a capacity of 170,000 tonnes per annum based on bought-out VCM

To fund the project, the company will come out with a rights issue for ("an amount not exceeding") Rs 200 crore. The company is in the process of filing draft offer documents with SEBI, the stock exchange notification says.