In one of the biggest transactions in the cement industry, the debt-laden Jaypee group signed a binding agreement on Sunday to sell its cement business, with a capacity of 18.4 million tonnes per annum (mtpa), to the Aditya BirlaGroup’s UltraTech Cement, for an enterprise value of Rs 16,500 crore. Under the deal, UltraTech will pay an additional Rs 470 crore for completion of the grinding unit for 4 mtpa capacity under implementation.
Also, Sunday’s 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, subject to several regulatory approvals, concludes, UltraTech’s capacity will rise from the current 68.3 mtpa to 90.7 mtpa. Adding the cement capacities of Century Textiles and Kesoram Industries, the total for all the Kumar Mangalam Birla-owned companieswill exceed 100 mtpa, making the group India’s biggest in the sector.
The Jaypee group, which has Rs 60,000 crore of debt on its books, was under pressure from the lenders to repay. UltraTech will take over the debt of the cement company from Jaypee, whose loans would then get reduced by Rs 16,500 crore. The enterprise value is far less than the Rs 21,000 crore 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 concrete steps to divest two cement plants in Madhya Pradesh (to UltraTech) in January 2015, but, for reasons not attributable to the company, 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.
The cement capacity of Jaypee is based in Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Andhra Pradesh and Karnataka.
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.
Jaypee had blamed worsening performance of core sectors and a shaky economy for the fall in financial metrics. With no sign of infrastructure sectors recovering in the near future, analysts said it was tough for the company to service its finance cost of Rs 7,300 crore a year. More asset sales by the group are expected in the near future.
In the past two years, Jaypee was aggressive in selling assets to raise about Rs 22,000 crore, but debt levels are estimated to be still up 18 per cent over the past two years. The asset sales to UltraTech have included another 8.4 mtpa of cement capacity in Gujarat for Rs 5,000 crore.
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.