Aditya Birla Group’s UltraTech Cement Ltd is front runner in the race for Jaiprakash Associates Ltd’s entire 20 million tonne cement capacity, according to two persons familiar with the situation.
UltraTech is offering an enterprise value of around Rs.18,000 crore for these assets, according to one of the two persons.
UltraTech is one of three bidders for Jaiprakash’s assets,Mint reported on 19 February.
The other bidders are private equity firm KKR & Co. and Dalmia Cement (Bharat) Ltd.
“UltraTech is in the advanced stage of acquiring Jaiprakash Associates’ cement assets. The company is working on various modalities for this acquisition,” said the first person, who spoke on condition of anonymity.
The person added that UltraTech would fund the deal largely through loans and a little bit of equity. An announcement in this regard is expected in a fortnight.
Jaiprakash Associates declined comment.
UltraTech didn’t respond to an email seeking comment.
UltraTech Cement had earlier agreed to buy two cement assets in Madhya Pradesh with a combined capacity of 5 million tonnes from Jaiprakash Associates for Rs.5,400 crore. The stand-alone deal was put on hold, and the two assets folded into a larger transaction under which the latter is seeking to divest its entire cement capacity.
Lenders to the debt-laden Jaypee Group have been pushing for a sale of the conglomerate’s cement assets in a bid to reduce the group’s overall debt.
According to bankers involved in the deal, a significant portion of the enterprise value would involve transfer of the debt currently on Jaiprakash Associates’ books.
Regulatory issues, though, can hamper the deal.
On 19 February, Mint reported that the cement deal cannot be completed before a proposed amendment to the Mines and Minerals (Development and Regulation) Act, 1957, is cleared.
The MMDR Act currently does not allow a company to transfer rights to an allotted mine to another company or subsidiary.
Given that limestone is a key raw material in the cement-making process, it is difficult to execute the sale of cement capacity without selling the related limestone mines as part of the deal.
The UltraTech Cement-Jaiprakash Associates deal may also run into anti-trust issues as UltraTech’s acquisition of Jaypee’s assets will expand its presence in the northern and central India markets.
The first person admitted that the Competition Commission of India (CCI) could oppose a deal. He added that multiple options are under consideration to address both CCI- and MMDR-related issues.
These include “either acquiring the cement division and then divesting, according to the CCI requirements, or buying out Jaiprakash Associates, if it demergers all its non-cement assets,” this person said.
According to a December 2014 investor presentation on the website of Jaiprakash Associates, the conglomerate has interests in engineering and construction, cement, real estate and hospitality businesses under it. In addition, Jaiprakash Associates holds a 60.72% stake in Jaiprakash Power Ventures Ltd and 71.64% in Jaypee Infratech Ltd.
“We are confident that all issues will be sorted out shortly,” said the second person.
The Jaypee Group had estimated debt of Rs.75,000 crore at the end of financial year 2015, according to the 21 October edition of Credit Suisse’s House of Debt report. UltraTech’s finances are far stronger. As of March 2015, UltraTech Cement had consolidated debt of Rs.9,829.14 crore and a debt-to-equity ratio of 0.47, allowing room for it to raise more debt.
If closed, the deal will help UltraTech strengthen its position as the market leader.
“Regulatory clearance would be a hurdle. However, the deal will help UltraTech achieve its 100-million-tonne, long-term cement capacity target easily,” said Amey Joshi, associate director (corporate) at India Ratings and Research Pvt. Ltd, a Fitch Group company.
After the acquisition, UltraTech’s capacity will jump 30% to 85 million tonnes from the current 65 million tonnes.
“UltraTech has been pushing for this deal for two reasons— one, there may not be such a large asset up for sale again, and second, if someone else acquires these it could threaten UltraTech’s market-leader position,” said a senior cement analyst at a domestic brokerage firm, who did not want to be named.
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