Valuation of Andhra Paper defers BILT IPO

US-based International Paper’s deal to buy Andhra Pradesh Paper at a very high premium to the market price has shaken up the paper industry.

Anticipating a sharp rise in valuations, Gautam Thapar-promoted Ballarpur Industries Ltd (BILT), the largest paper maker in India, has put on hold its plan to launch a $330-million initial public offer (IPO) of its UK subsidiary on the London Stock Exchange (LSE).

Earlier this week, International Paper said it would buy a majority stake in Andhra Pradesh Paper for $423 million (Rs 1,485 crore). The New York Stock Exchange-listed company will make an open offer to acquire another 21.5 per cent stake from the public.

What has surprised the stock market and paper companies is the 180 per cent premium that International Paper has offered to the promoters of Andhra Pradesh Paper.

“We have to wait for one-two months to see the implications of the International Paper deal. The deal will lead to a re-rating of Indian paper companies. If re-rating happens at a significantly higher level, we cannot list the company at a lower valuation,” Group Finance Director B Hariharan told Business Standard. He added the deal had come as a “blessing in disguise” for BILT.

According to Hariharan, the deal shows the Indian paper industry has immense potential for growth. “We understand that the buyer has paid a strategic premium to acquire Andhra Paper, but the deal is still relevant for our IPO plans,” he said.

The share prices of paper companies have seen a sharp surge after the deal, with BILT seeing a rise of 10 per cent on the Bombay Stock Exchange.

On March 22, BILT had announced a plan to list its UK subsidiary on the LSE. The proceeds from the issue were to be used to repay debt and expand capacity.

BILT’s paper, hardwood pulp and rayon grade pulp operations have four production units, three in India and one in Malaysia. BILT’s annual paper production capacity stood at 758,710 tonnes per annum (tpa)on December 31, 2010. The company plans to take this to 1,134,000 tpa by end-2014.