MUMBAI: Private equity heavyweightKKR is teaming up with diversified trading and

commodities group SIMECto invest Rs 900 crore to take over the cement business of debt-
laden ABG Group through a complex, multi-tiered financial transaction. The much
neededfunding will help ABG's founder promoter Rishi Agarwal to complete the last mile of his
much delayed project in Gujarat, said multiple sources aware of the ongoing negotiations.

The first leg of the 'special situations' transaction — about to be concluded in the coming weeks
— will see KKR fund SIMEC to pick up a 51% controlling stake in ABG Cements for Rs 525 crore.
This will be followed by an additional Rs 385 crore of funding collateralised by Agarwal's
unencumbered (unpledged) shares in the company. The money will be used to finish the
project, fund working capital and pay back overdue creditors. SIMEC has already made a part
payment to show their commitment to the deal, added the sources mentioned above. KKR too
has signed a term sheet with ABG's management. A detailed due diligence process is currently
ongoing.

Last year, SIMEC had agreed to buy into ABG's cement business but the deal had not concluded.
Now with KKR's funding, it is expected to close soon. Spokespersons from ABG Cements and
KKR declined to comment. Mails sent to SIMEC did not get a response till the time of going to
press.

Since 2010, ABG Cement has been planning a 5.8 million tonne cement unit. But due to
significant cost and time overrun, only a 3.3 million tonne clinker unit at Kutch near the
limestone reserves got completed. But Agarwal ran out of money to complete his grinding unit
at Surat. Clinkers are intermediates which are mixed with slag to make cement. The slags — a
by-product of blast furnace — is expected to come fromEssar Steelmaking it the only such unit
in western India. "Leveraged and marooned entrepreneurs need last mile financing. Once a
company goes into the debt restructuring mechanism by lenders, there are lots of restrictions.

These special situations funding is quite popular in the developed markets and is gaining
momentum in India too. As theeconomy and its core sectors like infrastructure and cement see
an upswing in demand, investors like KKR will take more of such bolder bets like these," said
an investment banker in the know on condition of anonymity. "Typically 99% of these plants are
complete and capital is required urgently for completion as well as to take care of high cost
creditors. The owners of these assets at times also want optionality of a claw back so that they
can regain control of their business after paying back," he added.

ABG Cements has a debt of around Rs 2,400 crore. With operational hubs inDubai, Hong Kong
and Singapore, SIMEC Group has a diversified commodities business spanning five continents
covering shipping, industrial, mining, energy. It also owns utility assets like power plants and a
cement grinding unit in Bahrain. SIMEC already sources about a million tonnes of clinker from
ABG but analysts feel with an eye on the upcoming Qatar World Cup, it will require far larger
supply of clinker going forward.

This will be the second transaction from the cash-strapped promoters of ABG Group in recent
weeks. The group's listed flagship ABG Shipyard — one of India's largest private shipbuilding
company — is also gearing up to sell a controlling stake to Beirutheadquartered Privinvest
Holding SAL, a leading manufacturer of naval and commercial vessels. This will be a much
needed lifeline as ABG has been struggling to stay afloat even a year after its Rs 11,000-crore
debt restructuring package was cleared under a corporate debt restructuring (CDR) proposal by
a consortium of 22 lenders. Just last month, the company had missed payments to some banks
which have classified the account as bad loan, putting pressure on the banking system to follow
suit.

ET in its June 12th edition first reported on the impending change of control in ABG Shipyard.

"Agarwal is ceding control of both his businesses to emerge as a junior equity partner. That's a
rare move in India Inc.He is definitely stretched but so are many of his peers. This is positive
move forward," said a senior PSU lender who has significant exposure in the group.

Many however feel this will be KKR's boldest bet so far. For starters, the plant is not yet ready.
Secondly, ABG does not yet have any brand recall and that has to be built over time. Finally
slag-based cement is a newer alternative to thePortland cement which is largely popular in
India.
KKR is already backing Puneet Dalmia's Dalmia Cement for the last five years. Dalmia's total
manufacturing capacity has reached 9 million tonnes per annum. It also a 45.4% stake in OCL
India (5.3 million tonnes) along with the upcoming greenfield cement projects across the
country. But it is largely focussed in Eastern India. The ABG transaction is independent of that.

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