A fund managed by JPMorgan Chase & Co has agreed to invest about $400 million in India's SKIL Infrastructure for a stake of just under 20 per cent, two sources with direct knowledge of the development told Reuters.
SKIL, which controls ship-builder Pipavav Defense and Offshore Engineering Ltd and has a 21 per cent stake in Everonn Education, will use the funds to pare debt and fund its growth, one of the sources said.
Part of the funds will be used by SKIL to repay loans it took to buy about 20 per cent of Pipavav from construction firm Punj Lloyd last year, the source said, adding SKIL will also invest in defense and education.
Pipavav, which is now 43 per cent owned by SKIL, was previously known as Pipavav Shipyard.
Both sources declined to be identified because the deal has not yet been announced. A potential deal was reported in June by India's Economic Times newspaper.
Officials at SKIL and New York-based JPMorgan were not immediately available for comment.
As of March 31, SKIL had total debt of Rs 13.51 billion ($285 million), excluding vehicle loans.
In June, it filed papers for an initial public offering to raise up to Rs 11.25 billion and is awaiting approval from the regulator.
"The company is looking to cut debt significantly, which is a positive sign," said Dev Kapadia, head of institutional equities at Lalkar Securities.
Pipavav Defense said on Monday it had formed an equal joint venture with state-run Mazagon Dock to build submarines and warships in order to gain access to growing spending by India as it modernizes its defense systems.
"The group's entry into defense sector looks lucrative in a long-term perspective," Kapadia said.
Arun Kejriwal, strategist at research firm KRIS, said the group's stepped-up focus on defense is a good idea.
"We need to know more about their execution strategy and delivery skills, because the deliveries haven't happened" he said.
Pipavav shares, which rose 11.6 per cent on Monday on investor enthusiasm over the defense tie-up, closed down 3.84 percent on Tuesday on what traders said was profit taking.
Private equity investment in India rose 21.6 per cent to $3.3 billion in the first half of 2011, according to Thomson Reuters data.
Private equity investments in infrastructure hit $4 billion last year from about $1 billion in 2006, Bain & Company said in a recent report, predicting activity could grow 25-50 per cent a year over the next three years.
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