The developments on the national and international cement scene are taking a new turn and we would like to provide our readers the latest information on mergers and acquisitions.
In one of the biggest transactions in the cement industry, the debt-laden Jaypee group signed a binding agreement to sell its cement business, with a capacity of 18.4 million tonnes per annum (mtpa), to the Aditya Birla Group´s UltraTech Cement, for an enterprise value of Rs 16,500 crore. The deal includes the two plants in Madhya Pradesh that were part of an earlier agreement scrapped on Friday. The deal had been cancelled as the Mines and Minerals Development and Regulation (MMDR) Act prohibits transfer of mines. The government is expected to allow the transfer by making changes to the Act in the Budget session.
´The valuation of Rs 16,500 crore for 18.4 mtpa operating capacity is certainly at a discount to what it would have commanded if the assets were sold separately. UltraTech has been able to get a good deal as there are not many buyers for such a large capacity,´ said a banker familiar with development.
The deal gives UltraTech access to the markets of Satna, Uttar Pradesh East, Himachal Pradesh and coastal Andhra Pradesh, where it does not have a presence. When the transaction is complete, UltraTech´s capacity will rise to 90.7 mtpa. Adding the cement capacities of Century Textiles and Kesoram Industries, the total for all the Kumar Mangalam Birla-owned companies will exceed 100 mtpa, making the group India´s biggest in the sector. Rs 21,000 crore value was expected by the Jaypee group until recently. However, with a March-end deadline to repay, Jaypee was not in a strong position to negotiate with the lenders.
´We had taken steps to divest two cement plants in Madhya Pradesh (to UltraTech) in January 2015, but this could not take place, a matter of great concern, as this affects even groups like us which are proactively pursuing the process of de-leveraging through disinvestment. In the given situation, it has now been considered appropriate to divest a significant portion of the total cement capacity in favour of UltraTech,´ said Manoj Gaur, executive chairman of Jaiprakash Associates Ltd.
Private equity entity KKR, Dalmia Cement and JSW Cement were the other bidders for Jaypee´s cement units. UltraTech won with the best bid, a source said. Group firm Jaiprakash Power had also sold two hydropower units, a capacity of 1,391 Mw, for Rs 9,300 crore to JSW Energy; it is in talks for sale of a 500-Mw project at Bina in Madhya Pradesh. However, analysts at Credit Suisse had in December said the 1,391-Mw hydro plants had contributed 59 per cent to the company´s 2014-15 operating earnings, so the loss in this by selling these projects would result in the ratio of debt to such earnings moving up, not down.
The readers may recall that earlier just few days before UltraTech had called off Rs 5,400 crore deal with Jaiprakash Associates for acquiring two of latter´s plants in Madhya Pradesh. The deal was subject to approval from the Bombay High Court. The Aditya Birla group company, said, ´The High Court has indicated that based on the recent amendments in the provisions of the Mines and Minerals (Development & Regulation) Act, 1947 preventing transfer of mines granted other than through auction, and in the absence of any clear timelines for any amendment in the Act, the court cannot sanction the Scheme. Under the circumstances, it was decided to apply for withdrawal of the Scheme filed before the High Court.´