The Bhartia family of the Jubilant Bhartia Group led by brothers Shyam and Hari Bhartia is in advance negotiations with Goldman Sachs to partner with them to acquire a 40% stake in Hindustan Coca-Cola Beverages (HCCB), the wholly owned bottling arm of the US beverage giant in India ? the 5th largest market of the Atlanta based beverages. Goldman Sachs is expected to finance the special purchase vehicle (SPV) created to own the HCCB stake, deploying INR 30,000 million to INR 35,000 million through a convertible preferred equity instrument.

A similar sized investment is being made by the Bhartia family themselves, said people aware of the development. The investment by the Wall Street bell weather will be routed through the fast growing Goldman Sachs Alternatives vertical ? an overarching vertical that does growth and private equity, hedge fund, real estate and private credit investments.

As per the terms of the agreement, that is in the getting stitched together, Goldman Sachs has agreed to cap their upside on the investment at 20% IRR with some downward protection. Goldman will subscribe to compulsory convertible preference shares that will get flipped during the planned listing of HCCB to facilitate their exit. Treated as a quasi-equity instrument, these deal terms will not include a coupon as is typical of debt trades.

The initial public offering (IPO), expected in the coming 2-3 years, will follow a waterfall mechanism, with senior secured lenders getting priority on repayment. The Goldman investment will sit in between the debt ? a lion?s share of which is being raised from mutual funds ?

and the Bhartia family?s equity. Coca-Cola listing plans for HCCB, aims to replicate the asset-light, valueunlocking initiative by rival PepsiCo, said the people cited above. The stake sale is seen as a precursor, aiding in price discovery.

PepsiCo has outsourced its bottling operations to billionaire entrepreneur Ravi Jaipuria-owned Varun Beverages, whose market value has leaped 47% in the past year and 20x since 2016 listing. The company?s board approved a INR 75,000 million fund raise from institutional investors to strengthen its balance sheet as competition in the cola segment has heightened following the entry of Reliance Industries Campa. The Bhartia family has been in discussions with alternative asset managers like Bain Credit, Apollo Global Management, Ares Management, domestic mutual funds and foreign banks to raise over a billion dollars in financing for the acquisition, ET was the first to report in its October 21st edition.

Goldman Sachs declined to comment. Mails sent to Bhartia family did not get a response.