IPO funds to help reduce debt, release CCVL pledge in favour of HDFC: Chemplast Sanmar

In FY19 and FY20, the company's revenue and EBITDA were low. Revenue was around Rs 1,250 crore and EBITDA around Rs 300 crore. Chemplast saw a sharp jump in 2021 as it acquired a 100 percent stake in Chemplast Cuddalore Vinyls Ltd (CCVL), which is the second largest manufacturer of suspension PVC in the country.

Chemplast's issue was subscribed over two times. In the DRHP, the company said that 100 percent of the share capital of CCVL was pledged in favour of HDFC. Also, the company has borrowings of Rs 3,100 crore and lenders have imposed some restrictions as far as the financing arrangements are concerned.

Therefore, when the company had a huge debt and a pledge, why did it raise only Rs 1,300 crore, and what was the rationale for acquiring CCVL? Did it have to take debt for that? These are some of the questions CNBC-TV18 asked the management of the company: Vijay Sankar, Chairman, and Ramkumar Shankar, Managing Director.

"CCVL was a part of the same Sanmar Chemicals Group. It is a control group transaction. It was just an acquisition within the same Sanmar Chemicals Group," said Vijay Sankar.

“We acquired it to present one common face of the Sanmar Chemicals business to the Indian capital market. The other reason we did that was because Chemplast Sanmar itself is going in for an expansion of its specialty PVC business, which is going to be co-located with the Chemplast CCVL’s own plants. So we thought there would be a common uniform face with no related party transactions going forward. We would present one large specialty chemical company to the Indian market, which is the reason for this acquisition and also for this IPO,” he explained.

He said the reason for the IPO was substantial deleveraging, which puts the company in a very good position as far as its balance sheet goes. It was also to take advantage of the various growth opportunities in its various segments that the company is present in, he said.

Asked about the pledge to HDFC, Vijay Sankar clarified, “The pledge actually will likely get released with the IPO. With the IPO, we are going in for a substantial deleveraging of both the company and the parent company. And while it has been pledged, the pledge has been released for the purpose of the IPO and we will also get the pledge removed completely because we are hoping to pay off the HDFC debt completely. So it is not something that you will see going forward.”

Asked whether it would be able to pay off the entire debt with Rs 1,300 crore and release the pledged shares, Ramkumar Shankar replied in the affirmative. “As far as fresh issuance of Rs 1,300 crore is concerned, the purpose of that is to repay the entire NCDs that are there on the books of Chemplast Sanmar and what Vijay was talking about was debt at the holding company level,” he added.

He also said that Rs 1300 crore would be more than sufficient net of the expenses of the issue to pay off the NCDs in full. It would actually lead to savings of around Rs 200 crore of interest on a pre-tax basis for the full year, he said.