Kolkata: After many failed attempts, Kolkata-based GP Goenka group on Tuesday concluded a deal with Jaypee Development Corp. Ltd, a privately held unit of the Jaypee Group, to sell a controlling stake in Andhra Cements Ltd.
The Jaypee Group may have to pay as much as Rs280 crore if all transactions envisaged in Tuesday’s agreement eventually go through. If the mandatory open offer is fully subscribed, the Jaypee Group will get 80% of the firm’s shares. The deal will leave the GP Goenka group with a 6% stake in the company, on which the Jaypee Group will have right of first refusal.
The Economic Times newspaper had reported in its Mumbai edition on Friday that the Jaypee Group was close to buying Andhra Cements.
The deal was sewn up in “only eight days” of negotiations, according to G.P. Goenka, chairman of the eponymous group. “It was possible only because of the great degree of trust that (Jaypee Group chairman) Manoj (Gaur) and I have for each other.”
Lodha Capital Markets Ltd, an associate of audit firm Lodha and Co., advised Goenka on the stake sale.
This is the second deal between Goenka and Manoj Gaur in the space of a year. A year ago, Goenka concluded an agreement to transfer his group’s ailing fertilizer business, which was part of Duncans Industries Ltd, to a joint venture with the Jaypee Group.
“The (latest) deal is an extension of the relationship that we have built over the past two years, working together on reviving Duncans Industries’ fertilizer unit,” Gaur said.
Goenka and Gaur scrambled to close the Andhra Cements deal because there were others interested in the company. “With most of Goenka’s stake mortgaged with lenders, he didn’t want to wait for too long,” said an investment banker, who did not want to be named.
Companies that had lent to Andhra Cements, such as Infrastructure Development Finance Co. Ltd and Housing Development Finance Corp. Ltd, already own substantial stakes, currently 17.38% and 14.94%, respectively, in Andhra Cements.
The cement maker, which has an annual manufacturing capacity of 1.5 million tonnes (mt), will issue around 147.5 million new shares for Rs12 each, giving the Jaypee Group a 50.25% stake. Alongside this, Goenka will be selling 48.11 million shares from his total holding of 65.8 million shares for Rs12 apiece. He and his associates currently own 45.11% of the company’s shares.
The transactions will lead to the Jaypee Group making an open offer to acquire 26% more of Andhra Cements’ shares. In keeping with Indian takeover regulations, the open offer will be made on the current equity capital of the company, and not on the expanded one—post allotment of new shares. All three legs of the transaction will be executed simultaneously, according to Goenka.
Rumours of the deal triggered a sharp fall in the share prices of both Jaypee Group flagship Jaiprakash Associates Ltd (JAL) and Andhra Cements. The firm that acquired Andhra Cements, though, isn’t an arm of JAL.
JAL’s shares closed 5.84% lower on BSE at Rs70.20 apiece, while the Andhra Cements stock fell 4.3% to Rs10.46. Andhra Cements announced the deal after markets closed.
Though its operations are currently under suspension, Andhra Cements had initiated steps to expand capacity, and according to Goenka, production can be stepped up to 3.5 mt at an investment of Rs250 crore.
Some analysts say that scaling up capacity to this level could eventually cost up to Rs400 crore. Even so, the deal took place at an enterprise valuation of around $85 (Rs4,300) per tonne—a substantial discount to the cost of setting up a new plant, which is $130-135 per tonne. Andhra Cements has outstanding debt of at least Rs500 crore, of which Rs400 crore is secured, or obtained against mortgage of assets.
“It appeared to be a value-for-money proposition,” said Gaur. “We will waste no time in reviving the plant.”
The firm’s key asset is its substantial limestone deposits, estimated at around 300 mt.
The Andhra Cements deal brings to an end the GP Goenka group’s ongoing restructuring and makes it debt-free, its chairman said. With unsecured loans given to the firm expected to be repaid in some time, the group will only have some working capital loans outstanding.
“Now we can look ahead,” Goenka said.