Adani Group signs non-dealing pact with foreign banks on cement stake

Adani stake is worth Rs 1.01 trillion as of Tuesday

Adani Group has signed a non-dealing undertaking with the foreign banks on its entire stakes in Ambuja Cements and ACC for raising funds to acquire the two cement companies, the stock exchanges were informed on Tuesday.

After acquisition, the group holds 63.15 per cent in Ambuja Cements and 56.69 per cent in ACC (of which 50.05 per cent is held through Ambuja Cements).

Ambuja market capitalisation was worth Rs 1.13 trillion as on Tuesday with the Adani stake valued at Rs 71,988 crore.

The NDU stake of 57 per cent in ACC is valued at Rs 29,175 crore while for the two companies combined it is worth Rs 1.01 trillion -- taking into account its value on Tuesday.

The Adani family entities have paid $6.4 billion to Swiss cement major Holcim for the stakes.

The transaction was financed by borrowing $4.5 billion from 14 international banks.

Barclays Bank, DBS Bank, Deutsche Bank, MUFG Bank and Standard Chartered Bank acted as mandated lead arrangers and book-runners to the transaction.

In addition, BNP Paribas, Citibank, Emirates NBD Bank, First Abu Dhabi Bank, ING Bank, Intesa Sanpaolo S.p.A, Mizuho Bank, Sumitomo Mitsui Banking Corporation and Qatar National Bank acted as mandated lead arrangers for the transaction.

Ambuja Cements said Endeavour Trade and Investment and Xcent Trade and Investment, the acquisition vehicle of the Adani family, had borrowed under facility on July 25 this year from Deutsche Bank, Hong Kong branch.

“Under certain deeds of fixed & floating charge, over 100 per cent shares in ETIL, XTIL and Holderind Investments have been created in favour of DB,” Ambuja said in its filing.

According to bankers, raising funds by giving NDU shares of target companies is international practice.

Last week, the new board of Ambuja Cements approved infusing Rs 20,000 crore into the firm through preferential allotments of warrants to the Adanis.

These funds will be used to double the capacity in the two companies to 140 million tonnes a year in five years.

On Saturday, group head Gautam Adani said the acquisition was a historic occasion for the group. In a single stroke, it has become the second-largest cement manufacturer in the country.

UltraTech is India’s largest cement company with the capacity to manufacture 120 million tonnes of cement a year.

“We now own two of the most iconic brands in the country. One that defines the ‘grit’ of pre-independence India and another that defines the ‘spirit’ of a confident India,” he had said, adding that the $6.4-billion acquisition was India’s largest ever inbound merger and acquisition transaction in the infrastructure and materials space and was closed in four months, a record.

Analysts say having factored in the underinvestment in the past decade, they estimate the capacity of Ambuja Cements and ACC to reach 100 million tonnes a year organically by 2025 with investments from the company and fund infusion from the promoters.

“We see a potential of Rs 250-300 a ton reduction in costs from the current run-rate, led by Rs 100-125 a ton reduction in power costs through investments at all sites, increase in renewable power, use of captive coal and reduction in grid power; lower fly ash cost through sourcing from group companies; lower freight costs through Adani group expertise in logistics, increase in rake availability and use of sea transport and group’s port infrastructure. The companies will save Rs 50-60 a ton saving from existing royalty payment (1 per cent of sales) to Holcim; and overhead cost reduction from the merger of ACC and Ambuja Cements (if at all),” said a Kotak Institutional Equities report.