Mumbai: UltraTech Cement Ltd, India’s largest cement maker and a subsidiary of Aditya Birla group, will purchase around 80% stake in Dubai’s ETA Star group-owned Star Cement Co. Llc. for an enterprise value of $380 million (Rs1,754 crore), an investment banker and a company official said.
They didn’t want to be identified.
The purchase will be made through UltraTech Cement Middle East Investments Ltd, a wholly owned subsidiary of UltraTech Cement.
Enterprise value is the market value of the entire business, including debt.
“It will be more than 51% (stake), it will be very high stake. It will give an exit route for ETA (group),” Adesh Gupta, a whole-time director and chief financial officer at Grasim Industries Ltd, which controls 60% in UltraTech Cement, told Mint on Monday.
The remaining stake in Star Cement will be held by the local partner with whom ETA had built cement plants. The acquisition is set for completion later this week.
The deal will give the $30 billion Birla group direct access to the West Asian market, until now served through exports, Gupta said.
“We used to export more than 3 lakh tonnes of clinker to the UAE market. So (now), instead of exporting clinker from India we have our own plant,” he said.
Mint had first reported on 28 April that the Birla group will buy a majority stake. Subsequently, the Birlas announced that the purchase would be made through UltraTech Cement Middle East for an enterprise value of at least Rs1,700 crore.
“UltraTech has gone there for the long-term and they will save freight costs because they no longer have to export clinker to that market,” said Rupesh Sankhe, an analyst at Mumbai-based brokerage Angel Broking Ltd.
The plan going forward, Gupta said, will be to reduce the debt burden on UltraTech.
“Star had debt, so we will refinance it with cheaper interest,” he said, adding that money will be raised from West Asian banks so the burden on UltraTech would be minimal. Such borrowing will also reduce currency risk, he added.
Gupta, however, refused to disclose details about the debt or the exact stake UltraTech Cement Middle East will hold in Star Cement, citing a confidentiality agreement.
UltraTech is also planning a 15MW coal-fired power plant in West Asia at a cost of Rs5 crore per megawatt to make cement at cheaper cost.
The United Arab Emirates (UAE) cement market has a total capacity of 30-35 million tonnes (mt), but demand slackened after a real estate slowdown hit Dubai last year. Star Cement has annual capacity of 3.2 mt.
“So far, cement was a major portion of Grasim and all the cash which was being generated was consumed by cement,” Gupta said. “Wherever UltraTech finds deficit in funding, we would like to contribute our own cash, but that may not happen for one-and-a-half years because they have enough for that period,” Gupta added.
In India, the Aditya Birla group has already demerged Grasim’s cement business into a newly listed subsidiary Samruddhi Ltd, which in turn will be merged with UltraTech.
Grasim currently has Rs2,500 cash on its book.
Gupta declined to say how the company would use the cash but said it will invest Rs1,000 crore by fiscal 2013 to more than double its capacity in viscose staple fibre, which is used to make fabric and garments, to 150,000 tonnes in Gujarat.