Bharat Forge defers rights offer, plans debenture issue

Forms JV with Alstom Power to make supercritical equipment.

Bharat Forge, the country’s largest auto component-maker, has deferred its proposed rights issue to promoters in the background of volatility in financial markets. Instead, the flagship company of the Kalyani Group plans to issue non- convertible debentures worth Rs 400 crore.

However, the debentures will have a detachable warrant that can be converted into equity shares. The auto component-maker had initially planned to raise Rs 300 crore through a rights issue to the promoters.

“The market conditions have made us take this decision,” said Baba Kalyani, chairman and managing director of Bharat Forge. The company did not specify how this delay in raising funds will affect their expansion plans, or a timeline when the debenture issue will be completed.

Meanwhile, the company today announced a joint venture with Alstom Power Systems, a unit of French power and transport equipment maker, to manufacture supercritical power equipment in India.

As per the agreement, two separate companies will be formed. The first firm will deal with manufacturing of core turbine and generators and the second will make all the auxiliary equipment.

While Alstom will hold majority stake (51 per cent) in the first JV, Bharat Forge will have 51 per cent stake in the second company. However, company officials did not divulge investment required for the project and also how Bharat Forge will raise the funds.

However, Kalyani said the JV will have a capacity to make 5,000 mw of power equipment, adding the plant will deliver its first equipment by 2012.

The proposed capacity, which represents around 20 per cent of India’s average capacity addition, will add Euro 1 billion in today’s value the company’s top line, he added.

Two sites – one in Gujarat and the another in Andhra Pradesh – have been shortlisted for setting up the proposed plant and a decision will be made shortly, company officials said.

The power equipment market in India is dominated by state-owned BHEL, which controls around 60 per cent market share. Chinese companies such as Dongfang Electric and others have made inroads in the Indian market with lower price tag and faster delivery of equipment. But with recent appreciation of the Chinese currency against the dollar, the price advantage for those firms has been muted.

The government is also considering a proposal to make domestic manufacturing a pre-condition for supplying equipment for power projects in the country.

In addition to supplying supercritical power equipment to thermal power producers, the joint venture is also exploring opportunities in the sub-critical range in gas and nuclear applications. “If gas and nuclear power market in India develops, we will increase this (referring to the 5,000 mw) capacity. Then we will need to make adjustment to the existing capacity,” said Philippe Joubert, president of Alstom Power Systems.