Goldman Sachs, Bhartia Family Eye 40% Stake In Hindustan Coca-Cola Beverages

Goldman Sachs plans to finance the transaction through a Special Purpose Vehicle, committing between Rs 3,000 crore and Rs 3,500 crore via a convertible preferred equity structure

The Bhartia family, led by Shyam and Hari Bhartia of the Jubilant Group, is in advanced talks with Goldman Sachs to jointly acquire a 40 per cent stake in Hindustan Coca-Cola Beverages (HCCB). This deal would grant them a significant share in Coca-Cola's wholly-owned bottling operation in India, the company's fifth-largest market globally, according to The Economic Times.

Goldman Sachs plans to finance the transaction through a Special Purpose Vehicle (SPV), committing between Rs 3,000 crore and Rs 3,500 crore via a convertible preferred equity structure. The Bhartia family is expected to match this contribution as part of the acquisition, the report added.

Goldman Sachs will channel its investment through its Goldman Sachs Alternatives unit, which oversees a diverse portfolio that includes growth and private equity, hedge funds, real estate, and private credit investments.

Goldman Sachs has agreed to a 20 per cent internal rate of return (IRR) cap on its returns, providing a measure of downside protection. The investment will be structured using compulsory convertible preference shares, which are expected to convert when HCCB conducts its anticipated IPO in the next 2-3 years. The IPO will follow a waterfall repayment structure, prioritising senior secured lenders, with Goldman Sachs positioned between the debt holders and the Bhartia family's equity stakes, according to the report.

Coca-Cola India plans to adopt a strategy similar to PepsiCo's asset-light model, aiming to create value through the sale of a stake in Hindustan Coca-Cola Beverages (HCCB). This stake sale could pave the way for an IPO, helping to establish HCCB’s market valuation. PepsiCo previously shifted its bottling operations to Varun Beverages, resulting in a significant increase in Varun's market value, according to the publication.

Hindustan Coca-Cola Beverages recently reported a 9.2 per cent increase in revenue, reaching Rs 14,021 crore for FY24, with a remarkable 247 per cent surge in net profit year-over-year. As part of its growth strategy, HCCB plans to invest $1.5 billion over the next five years to expand its bottling capacities and establish new facilities in Gujarat and Madhya Pradesh.

Despite the scale of this investment, the Bhartia family is keen to avoid over-leveraging. They plan to raise Rs 3,000-Rs 3,500 crore in debt from mutual funds, offering more cost-effective financing than traditional bank loans. Initially, the family explored funding options with various asset managers and foreign banks but ultimately chose a long-term partner instead of pursuing short-term mezzanine financing.