Lafarge bidding may see foreign bidders getting most aggressive

On the final day to bid for Lafarge India’s 11 million tonne (mt) cement business, foreign bidders including Mexico’s Cemex and China’s Anhui Conch Cement Company are expected to be the most aggressive players.

“Both are willing to pay a premium to enter India,” says an investment banker familiar with the development. “It is a rare opportunity for them to get such quality assets in a market that is set for steady growth in the coming decades,” he says.

Both the companies are expected to submit a bid on Monday worth about Rs 8,500 to Rs 9,000 crore. Domestic bidders including Ajay Piramal Group, Nirma and Sajjan Jindal-led JSW Cement are expected to be more conservative than foreign bidders. They may submit bids worth about Rs 8,000-8,500 crore, say bankers familiar with the bidding process that will end today.

Lafarge India submitted a revised proposal to the Competition Commission of India (CCI) to sell its entire 11-million tonne (mt) asset in India. This decision came after the company’s plan to sell its 5.15-mt cement capacity in Chhattisgarh and Jharkhand to Birla Corporation for Rs 5,000 crore ran into trouble. Investment bankers said the MP Birla Group company was facing challenges in securing limestone mining rights for the two units.

France-based Lafarge and Swiss cement giant Holcim announced a global merger in April 2014 to create the world’s largest cement company. This raised eyebrows of anti-trust watchdogs in several countries.

In India, Holcim, through its control of Ambuja Cement and ACC, has 60 mt of capacity. Lafarge, on the other hand, has a capacity of 11 mt in India, of which 7.8 mt (70%) is in Chhattisgarh, Jharkhand and West Bengal. Holcim’s ACC and Ambuja have capacities of 6.1 mt and 4.6 mt, respectively, in India’s eastern region. A simple merger would have led to a capacity of 18.5 mt in the eastern states for Holcim-Lafarge, which would have been more than 40% of the estimated 46 mt of total capacity in the region. This led to a scrutiny by the CCI.

The CCI had asked Lafarge India to sell its 5.15 mt capacity in eastern India by December 31 to complete its global merger.

In August 2015, Birla Corp had agreed to buy the proposed assets along with brands Concreto and PSC and mineral rights over adequate reserves of limestone. The deal was conditional on Birla Corp being able to secure mining rights that Lafarge had. Due to regulatory changes, transfer of mining rights for an asset sale deal was not allowed.

Lafarge India put the entire company on the block, as in the case of the sale of the entire company, transfer of mining rights was permitted.