Is ACC-Ambuja restructuring deal part of Holcim's effort to cut debt?

The Swiss cement giant had a debt of Rs 68,000 cr on March 31

When Ambuja Cements' managing director (MD) Onne van der Weijde on Wednesday said the company’s restructuring deal with group firm ACC was not an outcome of the fact that their Switzerland-based parent Holcim was in need of cash, it raised many eyebrows among market participants and analysts.

The company’s former MD Anil Singhvi was quick to call the deal a “fraud” in an interview to a TV channel: “Holcim would not have gone for the deal if if did not need cash.”

Holcim had a net financial debt of 10.8 billion Swiss francs (Rs 68,090 crore today) in its balance sheet as on March 31. Holcim’s Indian companies — ACC and Ambuja — have a consolidated cement making capacity of 58 million tonnes (mt) in the country’s 350-mt cement sector.

In a complex deal, Holcim will raise its stake in Ambuja to 61.39 per cent from 50 per cent now, while Ambuja will pick up Holcim’s 50.01 per cent holding in ACC. What has irked sector experts is the straight outgo of cash amounting to Rs 3,500 crore from Ambuja’s balance sheet. Brokerages fear the deal will have its detrimental impact on the company and its minority shareholders. “The cash could have been used alternatively for a buyback. Additionally, Ambuja has committed to acquire an additional 10 per cent stake in ACC over 24 months. In our view, this will convert Ambuja into a net debt company,” Credit Suisse said in a note.

Added a research analyst at a Mumbai-based leading brokerage: “Holcim seems desperate to raise cash. Though the management denies, its high debt and the company’s restructuring drive seem to be serving the purpose of raising cash.”

It stands true. Last December, the Swiss giant had announced restructuring its Europe operations. That time, the company introduced a leaner management structure for Europe. “Measures evaluated and already initiated will lead to annual cost savings of at least 120 million Swiss franc (Rs 756.5 crore), a better utilisation rate of the capacity and a more efficient allocation of the capital expenditure,” it had said. Within weeks of it, several global transactions surfaced — many of them were done for undisclosed sums.

Barely a month before proposing the restructuring of its Indian operations, Holcim had sold its New Caledonia plant (Holcim Nouvelle Caledonie) to Japanese firm Tokuyama Corp for an undisclosed sum. The transaction closed on June 27. Prior to this, in March this year, Holcim sold a 25 per cent stake in Cement Australia to German cement maker HeidelbergCement — yet again, the transaction value remained undisclosed. Further, last December, Holcim reduced its shareholding in Thailand-based Siam City Cement from 36.8 per cent to 27.5 per cent. At the same time, the company sold its 20 per cent stake in Guatemala’s Cementos Progreso to its majority shareholder Grupo Cemcal Progreso. For the sale of these two share packages, Holcim received about Rs 2,360 crore.