India's largest sugar producer - Bajaj Hindustan is poised to acquire 36.67% in its nearest competitor Balrampur Chini Mills form its promoter - Kolkata based Saraogis in a deal valued at Rs 2,400 cr.

Shishir Bajaj company is also preparing to buy another 20% from the minority shareholders to meet the regulatory requirements. The deal is likely to be a LBO, wherein Bajaj will raise funds by leveraging Balrampur Chini's balance sheet.Bajaj already has a debt of Rs 3,000 cr on its balance sheet.

The LBO may not be easy given the funding constraints on Indian banks, which are discouraged from lending for takeovers. The acquirer also has to has to give additional collateral of 1.5 to 2 times of the loan, in addition to the original collateral.

The deal, if happens, will make the debt-laden Bajaj the second biggest manufacturer of the sweetener in the world behind Brazil’s Cosan SA in a market where product prices are set to rise due to increasing demand and falling sugarcane output.

Foundedby Jamnalal Bajaj in 1931, Bajaj operates 16sugar mills located in UP with an overall capacity to crush more than 1,35,000 tons a day. The company had a revenue of Rs 2,070 crore, operating margin of 2.09% and a loss of Rs 197.6 crore for the year ended September 2008.

Incorporated in 1975, Balrampur is the second largest sugar producer in the country with capacity to crush 73,500 tonnes per day. It runs 10 sugar mills, all located in east UP. It  posted a revenue of Rs. 1,490 cr and an operating margin of 13.4% for the year ended September 2008.

The better operating performance has led to the market valuing Balrampur at Rs 3,833 crore, while Bajaj is valued at Rs 3474 crore.