 "Jaypee Group to sell cement arm by March for Rs 19,500 cr")
UltraTech Cement, part of the Aditya Birla Group, on Monday agreed to buy Jaiprakash Associates’ 17.2 million tonnes per annum (mtpa) cement capacity for an enterprise value of Rs 16,189 crore.
The deal was revised upwards from Rs 15,900 crore that was agreed on March 31. This is the second revision to the deal price of Rs 16,500 crore for 18.4 mtpa capacity in February for plants in Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh and Karnataka.
The March deal revision had excluded the 1.2-million tonne plant in Karnataka.
An additional payment of Rs 470 crore for 4 mtpa under construction grinding unit in Uttar Pradesh was included in the February agreement. The payment will be made once the construction is completed.
The deal was revised upwards from Rs 15,900 crore that was agreed on March 31. This is the second revision to the deal price of Rs 16,500 crore for 18.4 mtpa capacity in February for plants in Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh and Karnataka.
The March deal revision had excluded the 1.2-million tonne plant in Karnataka.
An additional payment of Rs 470 crore for 4 mtpa under construction grinding unit in Uttar Pradesh was included in the February agreement. The payment will be made once the construction is completed.
While the deal will take UltraTech’s cement capacity to 91 mtpa from the present 68 mtpa, it will help the Jaypee group reduce its debt. Jaiprakash Associates defaulted on bank loans, interest and statutory payments of Rs 4,539 crore.
The company said this year that it failed to repay Rs 2,905 crore in principal amount to banks and Rs 1,558 crore in interest payments. UltraTech said in a statement, “The proposed transaction is essentially a geographic market expansion which will lead to UltraTech’s entry into growing markets of India.”
Analysts said the deal will give a major push to the company in the north, which is currently dominated by Ambuja Cements, ACC and Shree Cement.
The Jaiprakash Associates’ account became a non-performing asset (NPA) on the books of State Bank of India last financial year. The lenders, led by ICICI Bank, had asked the company to sell assets so that it could repay its loans. The strategic debt restructuring provision was also invoked by over 30 lenders to the company, so that they can keep the account standard for the next 18 months in which the sale of assets is expected to be completed. The acquisition is expected to take around 12-14 months to close and is subject to regulatory approvals.
Also Read: UltraTech Buys Jaypee Cement Units For Rs 15,900 Cr
After the deal, Jaypee will continue to have 10.6 mtpa of cement capacity in Madhya Pradesh, Uttar Pradesh, Andhra Pradesh and Karnataka.
“The Jaypee Group is determined to reduce its overall debt through its proactive divestment initiatives to help the group tide these current turbulent times caused by economic slowdown in the country,” said Manoj Gaur, executive chairman, Jaypee Group in a statement.
UltraTech has plans to take over Jaypee’s Rs 11,500-crore debt as part of the deal, which will be refinanced by it at lower rates due to its good credit rating. For the remaining Rs 4,400 crore, UltraTech will fund it by taking additional debt which it would raise on its own balance sheet. There is no upfront payment to Jaypee and the money will be paid on the date of closing.
The widening gap between UltraTech’s capacity and its arch-rival Swiss giant Holcim’s (which controls nearly 60 mtpa of capacity in the Indian cement market via two of its associates — Ambuja Cements and ACC) will help the Birla firm maintain its dominant position in the 400 mtpa Indian cement market. UltraTech, one of the newest players in the Indian cement industry with 12 years of history (post Birla’s acquisition of L&T’s cement business in 2004), is one of the fastest growing companies in terms of capacity augmentation. In 2009, when Grasim’s assets were being brought under one umbrella of UltraTech — the management had made it clear that going forward the company's expansion would be more inorganic.
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It could take up to a year to complete the regulatory process needed for UltraTech’s acquisition of Jaypee 2014
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