CRH, the Irish building materials group, is set to pick up a controlling 51 per cent stake in the cement operations of Jaiprakash Associates in Gujarat for an enterprise value of Rs 4,200 crore, according to people familiar with the developments.
CRH will also have the option of increasing its holding to 65 per cent over the next three years at a pre-fixed price via a call option. “CRH will have the option of picking up an additional 14 per cent from Jaiprakash Associates at the current price plus a 16 per cent annualised return or at a fair price determined by an independent valuer, whichever is higher,” said one of the officials familiar with the ongoing negotiations.
Jaypee Cement Corporation has two plants in Gujarat in Sewagram and Wanakbori — each having a capacity of 2.4 million tonnes (mt). After the transaction, Jaypee Associates, the diversified power to real estate and cement group’s flagship, will be able to deleverage its balance sheet, which has been struggling to bring down its consolidated debt of Rs 45,000 crore.
The deal will help pare its debt by Rs 1,800 crore and see a fresh equity infusion of Rs 1,200 crore. Jaypee Group, the country’s third largest cement maker, has a total installed capacity of 33.5 mt, of which 23.7 mt comes under Jaiprakash Associates. The operations in Gujarat and Andhra Pradesh were recently hived off into a separate entity — Jaypee Cement Corporation — to facilitate a stake sale. But now Jaypee will retain control over its 4.8-mt Andhra operations.
Sources said Jaypee might soon initiate talks with others for the Andhra unit as well. The due diligence is currently on as both CRH and Jaypee have agreed to undergo exclusive negotiations. A formal announcement was due within a few weeks, said one of the sources mentioned above.
When contacted, Jaypee group did not want to comment. Jaypee Group had been looking at roping in strategic partners for its cement business for some time. It had negotiations with Brazil’s Votorantim and the Aditya Birla Group, which did not fructify. Industry sources said Jaypee was asking for $165-175 a tonne while the Birla firm had proposed $140 a tonne.
In 2008, CRH, the $13.7-billion major, had entered India by acquiring 50 per cent stake in Hyderabad-based cement producer My Home Industries, which currently has an installed capacity of 4.2 mt. With the latest acquisition, CRH will break into the top 10 cement makers in the country. CRH reported euro 18-billion revenue last year.