Jaypee in last lap to sell Gujarat cement units

Sale will be for Rs 4,000 crore, according to Credit Suisse

Jaiprakash Associates, the parent company of the Jaypee Group, is planning to sell its Gujarat-based cement units for Rs 4,000 crore in a few weeks. The move is aimed at reducing its debt pile, sources say.

Earlier, the group was in talks with the Birlas to sell the cement units. However, as its expected valuation of $170 a tonne was very high, it failed to seal the deal. Sources say the deal is now likely to be carried out at $150 a tonne.

Jaypee Group Chairman Manoj Gaur did not reply to queries on the impending sale.

In Gujarat, the company has cement capacity of 4.5 million tonnes per annum (mtpa) and it values this at Rs 4,000 crore.

Today, the Jaiprakash Associates stock closed at Rs 72.45 on the Bombay Stock Exchange, 2.6 per cent higher than Friday's close. Since January, the stock has fallen 26 per cent, against the Sensex's 5.5 per cent fall.

"According to Jaiprakash Associates, it is in advanced stages for concluding the sale of its entire 100 per cent stake in the 4.8-mtpa Gujarat capacity for Rs 4,000 crore, implying an enterprise valuation of $150 a tonne," says a Credit Suisse report dated April 11. "Lack of fund-raising would deteriorate its debt coverage ratios and result in lenders raising its cost of borrowings," it adds.

As of March 2011, the company's consolidated debt stood at Rs 53,174 crore. Its standalone debt, as of September 2012, was Rs 19,549 crore, exchange filings showed. The debt soared to alarming levels after it undertook many high-cost infrastructure projects, including the Noida-Delhi Expressway, apart from investing in cement units

Analysts say the worst is now past, as the company has already deferred the planned $20-billion capital expenditure towards 14-mtpa cement capacity expansion, 8-Gw power capacity addition, the Ganga expressway project and the capital expenditure on diversifications in ports, oil & gas, etc.

Jaiprakash Associates is looking to raise funds by selling stake in its power venture Jaiprakash Power Ventures. Analysts say this can be achieved through the sale of its treasury stock (which could raise Rs 950 crore), an equity issuance at Jaiprakash Power Ventures or stake sale in key power assets.

Alternatively, Jaiprakash Associates could raise funds by selling its treasury shares worth Rs 1,400 crore or selling part of Jaypee Cement Corporation's stake in its Andhra-based cement capacity. "We believe the sale of its treasury shares is unlikely, as it would lead to it booking accounting losses. We, therefore, factor in 20 per cent equity dilution in our valuation for Jaiprakash Power Ventures, assuming it meets its funding needs through equity issuance," the report says.

In April 2011, Jaiprakash Associates had de-merged its South-based cement units with a capacity of five mtpa, as well as those in western India (capacity of 4.8 mtpa) to its wholly-owned subsidiary, Jaypee Cement Corporation, with the intention of part or full stake sale.