The Bharitian siblings, Shyam and Hari Bhartia of the Jubilant Bhartia Group, are reportedly in talks with asset managers as well as mutual funds and foreign banks to the tune of 40 percent stake in Hindustan Coca-Cola Beverages (HCCB) for which they are raising funds up to close to INR 12,500 crore($ 1.5 billion).
Bhartias in talks with Apollo , Ares, Bain Capital, and Kotak Alternate Asset Managers
According to Economic Times, the Bhartia brothers are set to make their biggest investment by buying a stake in Coca-Cola’s Indian bottling arm. They are exploring various options and discussing with Apollo Global Management, Ares Management, Bain Capital, and Kotak Alternate Asset Managers to raise INR 4,000-5,000 crore ($475-595 million), said three sources.
Continue Exploring: iD Fresh Food reports INR 1.84 Cr profit in FY 24 with 16% Revenue Growth
Meanwhile, Shamit Bhartia, non-executive director of Jubilant Industries, is leading the talks. They are considering a structured instrument, like a compulsorily convertible preference share or convertible debenture, for three years with a minimum return threshold. Coca-Cola plans to list HCCB and follow PepsiCo’s asset-light strategy. The stake sale is seen as a precursor to help determine the price.
However, the structured deal’s key will be negotiating minimum returns, tied to HCCB’s planned listing for an exit. The IPO, expected in the coming years, will use a waterfall mechanism, giving senior secured lenders priority on repayment.
Bhartias to secure loan from mutual funds, plans to own 40% of HCCB
These deal terms may not include an interest payment, unlike typical debt trades. They also probably won’t have any security based on shares of the group’s listed companies, such as Jubilant Foodworks, which holds exclusive franchises for Dunkin’ Donuts, Popeyes, and Domino’s Pizza in India and other regions.
Continue Exploring: OYO restructures leadership in key verticals to accelerate global growth
At the same time, they are also discussing raising three- to five-year debt from mutual funds. Investment bank Morgan Stanley is working exclusively with the Bhartia family on this and was the buy-side advisor in the negotiations. It’s unclear if Morgan Stanley will part-finance the deal from its balance sheet and then sell to other investors. The plan is to create a special purpose vehicle (SPV) that will own 40% equity in HCCB.
Further, potential investors and financiers are confident in the strength and cash flow of HCCB. Discussions are ongoing and expected to continue until the end of the year.
According to debt capital market expert Ajay Manglunia, “Mutual funds through AIFs (alternative investment funds) are participating in funding acquisitions as AIFs have stable, patient capital with a longer lock-in, without a redemption facility. Once the money is invested, it stays with the fund, which is expected to generate better yields. Unlike mutual funds, which offer daily NAV-based redemptions, AIFs can target higher yields over longer periods, helping them to support structured finance, which mutual funds have been unable to address post the IL&FS crisis.”
Earlier, Coca-Cola discouraged the Bhartias from bringing in traditional private equity investors, despite reaching out to several US firms. This led the Bhartia family to approach Apollo, Bain, and others to co-finance the deal. “Coke has been very demanding about who can partner them,” said an executive. “Players like Bain or Apollo will be treated just below the senior lenders in the waterfall structure. Further clarity will emerge by December about the final contours and the final quantum from the different set of investors and lenders.”
Moving forward, “Private credit funds looking at the INR 4,000-crore mezzanine deal are expecting returns upwards of high teens, driven by a base return and upside sharing,” said one of the persons cited.
Looking to invest INR 4,000-4,500 crore, The Bhartia family is also in talks with HSBC, Standard Chartered Bank, Deutsche Bank, Barclays, and Citi for credit lines. They don’t favour loans against promoter group shares in group entities, said people with knowledge of the matter.
