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| Q1. |
What is the rationale for this restructuring? |
| Ans. |
BILT currently has two major business segments. One is the commodity business, which needs large capital to grow and the other is the specialty and consumer facing products / business, which is a steady business and needs lesser capital to grow. Currently, there are three units in India i.e. Bhigwan, Ballarpur and Kamalapuram, which are engaged in the commodity business (say “BILT II Units”) in India besides Sabah Forest Industries Sdn Bhd(“SFI”) in Malaysia, also in the commodity business. The other three units in India are predominantly in the speciality and consumer facing products segment.
The object of the Scheme is to enable to retire costly debt, right size the equity of the Company and benefit the small shareholders pursuant to buyback of shares. The Unit price for the stock split share of Rs. 2/- per share of the Company will be Rs. 25/-; whereas for the small shareholder opting to sell even the residual 60% shares, such shareholder would be paid Rs. 30 for the said balance 60% shares offered for purchase.
The current restructuring plan enables consolidation of the commodity business under a common aligned structure. Having acquired SFI through Ballarpur Paper Holdings B.V. (“BPH”) a Netherlands company, the Company will continue to hold BILT II Units through BPH which is its subsidiary holding SFI investments of the Company. BPH will be available as a ‘special purpose vehicle’ for long term fund raising outside India to facilitate future acquisitions / expansions.
(a) BILT would be better placed to capture the value of the entire group and fetch better valuation from any overseas investors including private equity funds.
(b) In due course of time, it may be possible to list BPH at in the international market.
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| Q2. |
Who controls BPH? |
| Ans. |
For the acquisition of SFI, BILT had formed two ‘special purpose vehicles, namely Ballarpur International Holdings B.V. (“BIH”) and Ballarpur Paper Holdings B.V., both based in the Netherlands. BIH is held 80% by BILT and the remaining 20% is held by JP Morgan as beneficial owner. BPH is a wholly owned subsidiary of BIH. In other words, BPH is a deemed or stepdown subsidiary of BILT. BILT remains the holding company of BPH.
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| Q3. |
By undertaking such a scheme , are the profitable units being taken away from BILT? |
| Ans. |
No, The profitable undertaking will remain under the control of BILT. BPH and BILT Graphic Paper Products Limited (BGPPL) will consolidate its accounts with the Company. The restructuring substantially unlocks value, without loss of control. |
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| Q4. |
What is the modus operandi for the restructuring? |
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The proposed restructuring will be achieved through a scheme of arrangement under Sections 391 - 394 of the Companies Act, 1956, through the Court approved Scheme as ‘Slump Exchange’. |
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| Q5. |
What is the consideration for the slump exchange ? |
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The consideration for the slump exchange of BILT II Units will be Rs. 1950 crores, which is nearly the book value of the units. Shares of Rs. 450 crores and Secured redeemable Non-convertible debentures of Rs. 1500 crores will be issued by BGPPL to the company.
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| Q6. |
Why is the transfer at book value? Is it a fair value ? |
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As the assets are being transferred to a wholly owned subsidiary of BILT, hence the slump exchange is based on the PWC report which values these undertakings as near to the book value. |
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| Q7. |
How will the consideration flow to BILT? |
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BGPPL will initially issue securities in the form of shares and debentures to BILT. The Securities issued will be monetised by purchase by BPH. The full value of the securities will be received by the Company upon BPH acquiring these, at cost. |
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| Q8. |
How will BILT use the funds as above? |
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BILT will use about Rs. 900-1000 crores for the mandatory buyback of 40% of the paid up share capital from all shareholders. Small shareholders i.e. those holding 1000 or less shares, would have the option to sell their entire shareholding (universally applicable 40% at Rs. 25/- per share and balance 60% at Rs.30/- per share) |
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| Q9. |
What will be the Buyback price? |
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The price fixed is higher than the 6 months, 2 weeks average and the closing price of 23rd July, 2007 at the stock exchanges. The buyback for a stock split share of Rs. 2/- face value is Rs. 25/- per share . (The prestock split value is Rs. 10/- per share). |
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| Q10. |
Why the buyback price is not linked to market price? |
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The buyback is through the scheme. It is a prorata buyback from all shareholders of the Company and hence the proportion of interest in the Company is not altered at all for eg. the Shareholder holding 10% of the Company before the buyback , will continue to hold 10% of the Company. The Valuation of the right sized equity will continue to capture market value of the Company, as no shareholders’ interest is diluted. |
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| Q11. |
If the buyback price is fixed and lower than market price, why should a shareholder vote for the resolution? He has an option to get a better price in the market? |
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If the market price is higher and any shareholder exits through the market, he is no longer a shareholder in BILT. As a result of the buyback, in addition to getting the buyback price in hand, the shareholder is retaining the same proportionate shareholding in BILT after the buyback. Though he may obtain a better price in the market, he has to divest his shareholding to obtain the same, whereas, under the buyback, while retaining his proportionate shareholding, he will receive price for bought back portion of shares. |
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| Q12. |
If at the time of actual buyback of the shares, if the share price is say Rs. 200/-, why should a shareholder holding 100 shares pre-split agree to bought back for his 40% holding at Rs. 125/- per share. If he sells his 40% holding in the market, he will get Rs. 8,000/- as against Rs. 5,000/- as per the buyback. |
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Share price and market cap are linked to the number of shares outstanding. Assuming market cap as constant, if the number of shares are higher, the price per share will be lower and vice versa. Assuming, with the current share capital base, if the share price goes upto Rs. 200/- per share at the time of buyback the market cap will be Rs. 3,720 crore . If the number of shares are reduced post buyback to 10.71 crore for the same market cap, the share price should be Rs. 347/- per share. Now let us compute the value of a shareholder holding 100 shares under both options :
No Buyback With Buyback
No. of Shares 100 100
Shares sold / bought back 40 40
Market price / Buyback price 200 125
Consideration for 40 shares (in Rs.) 8,000 5,000
Residual Share Price (in Rs.) 200 347
Value of balance 60 shares (in Rs.) 12,000 20,820
Total Value including cash received on sale / buyback (in Rs.) 20,000 25,820
From the above, it is clear that the shareholder will not loose his value if the market price is above buyback since the same will be captured in his residual holding.
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| Q13. |
How is BPH planning to raise funds? |
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BPH is in discussion with International / Domestic banks and institutions for raising long term debt and equity in BPH and has received indicative term sheets for the same. |
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| Q14. |
When will the process be completed? |
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The entire process of having the Scheme approved and sanctioned is expected to be completed between December 31, 2007 and February, 2008. |
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| Q15. |
What is the Appointed Date of the Slump Exchange? |
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The Appointed Date for the slump exchange under the Scheme shall be July 1, 2007. |
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