Jaypee Group is in talks with Heidelberg Cement, the world's third biggest cement maker, and Sajjan Jindal-led JSW Cement, to form a joint venture which will control the majority of its cement plants as part of an ongoing exercise to reduce debt.
The plan envisages a separate joint venture entity which will house around 20-22 million tonnes (MT) of Jaypee's operational units spread across Uttar Pradesh, Himachal, Uttarakhand, Andhra Pradesh, Chattisgarh and a new greenfield unit in Karnataka, which is expected to come on stream this year, said multiple sources in the know. Jaypee is open to becoming a junior partner in the proposed venture with a 49% shareholding but may even go down to 40% thereby ceding management control and a majority stake.
The rationale behind the exercise, said the people cited above, is to significantly bring down Jaypee's consolidated group net debt in one shot. The Delhi-based conglomerate's debt level, Rs 70,000 crore as of 31 March 2014, is still considered high even after a spate of asset sales from its cement, real estate and power portfolio. In cement alone, Jaypee has sold assets worth Rs 10,000 crore. For both Heidelberg and JSW - still largely regional players - the proposed deal gives an opportunity to ramp up their footprint nationally.
Interestingly, the JV may exclude Jaypee's first cement plant located in Rewa, Madhya Pradesh which has approximately 3 million tonnes of capacity. But it is likely to include the around 2-million tonne unit of separately listed Andhra Cement, which is controlled through a separate privately held entity, Jaypee Development Corporation. The 3 MT per annum Karnataka unit -- being set up in two phases - will be included added in the venture. The first phase of the Karnataka project is set to be operational by April, 2015 while the second by October, 2016.
Teams from Heidelberg, JSW are said to have begun visting Jaypee plants for technical dilligence. No binding financial offer has yet been made. The discussions are still at a preliminary stage and may not fructify into a deal just as yet, cautioned one of sources mentioned above.
Heidelberg operates in India through its listed arm Heidelberg CementBSE 2.30 % India Limited while JSW Cement, a private company, is part of the diversified JSW Group. JAL is listed as is Andhra CementsBSE -0.53 %.
A Big 4 consulting and audit firm is be helping Jaypee in the valuation and structuring, according to the people cited. It is still not clear if a separate JV vehicle will get created or a merger will take place between existing entities. Most expect clarity on those issue to emerge in the coming weeks.
The Jaypee Group spokesperson said there are no plans to divest any more cement assets. "At Group level, Jaypee Group has taken disinvestment decision for Rs.22,000 crore. The news regarding JAL's discussion with Heidelberg or any other Group is purely a market speculation. JAL is not pursuing further divestment in Cement."
JSW Group spokesperson responded to ET's written questionnaire by saying they do not wish to comment on speculative news.
"Heidelberg Cement has always kept a principle of not reacting to market speculation or rumours. India continues to be a high growth market and Heidelberg Cement remains committed towards its growth plans for the country and will look at all organic and inorganic paths of growth," the Indian spokesperson for the German MNC told ET
Even after divesting assets of over 13 million tonnes to local peers UltratechBSE 0.05 %, Dalmia and Shree Cement, Jaypee Group remains the third largest cement player in the country with close to 23 MT of operational capacity. The cement business is part of flagship Jaiprakash Associates (JAL). JAL's standalone capacity is around 14.2 MT with the rest -- including the 5 million tonne Balaji Cement -- are housed in subsidiaries, JVs or group companies.
Sources add, the combined enterprise value of the assets, inclusive of debt, is expected to be in between Rs 16,000 -Rs 18,000 crore ($2.6 billion- $3 billion).
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