BackJSW Cement among bidders for Reliance Infra assets
The units, one of the last large cement capacities up for sale, offer firms opportunity to raise capacity swiftly
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Mumbai: JSW Cement Ltd and J.K. Lakshmi Cement Ltd are among seven bidders shortlisted for Reliance Infrastructure Ltd’s 5.5 million tonne cement assets, an official directly involved in the deal said.
Anil Ambani-led Reliance Infrastructure has decided to sell its cement business as it plans to focus on the defence sector. On 5 November, the company said it has shortlisted seven potential buyers who submitted preliminary expressions of interest to buy its cement business.
The deal offers cement companies such as JSW Cement and J.K. Lakshmi the opportunity to increase capacity swiftly. It is also one of the last large cement capacities up for sale. While JSW has an installed capacity of 6 million tonnes, J.K. Lakshmi Cement has 8.4 million tonnes.
Reliance Infrastructure holds its cement assets under Reliance Cement Co. Pvt. Ltd, its wholly-owned subsidiary.
JSW Cement, J.K. Lakshmi Cement and a few private equity firms are among the seven shortlisted bidders, the official cited above said, requesting anonymity.
A spokesperson for JSW Cement declined to comment.
A spokesperson for J.K. Lakshmi Cement confirmed interest in the deal and said it fits well with the company’s strategy. “We did bid for Reliance Cement. The asset has the potential to increase our presence in central and north Indian markets," the spokesperson said.
Reliance Cement’s capacity is spread across four states: an integrated unit in Madhya Pradesh and grinding units in Uttar Pradesh, West Bengal and Maharashtra.
Private equity firm Blackstone Group Lp had placed a bid to acquire Reliance Cement, Mint reported in October.
“We do not respond to market speculation," a spokesperson for Reliance group said in an emailed response.
The official mentioned above said the next round of bidding is likely in December. On 5 November, Reliance Infrastructure said it expects to complete the sale by end of the current financial year. If completed, this would be this year’s second big deal in India’s constantly churning cement industry.
In August, Birla Corp. Ltd agreed to acquire two cement assets from the local arm of Lafarge SA with a combined production capacity of around 5.15 million tonnes for a total enterprise value of 5,000 crore.
The Lafarge-Birla Corp. deal is yet to be completed as it awaits clarity on the transfer of the limestones mines which are part of the cement assets. Under the new Mines and Minerals (Development and Regulation) Act, transfer of mining leases is allowed only for mines that have been auctioned.
The Reliance Cement deal is unlikely to face a similar fate, said investment bankers and company officials. “This deal would be at the company level (Reliance Cement) and the mining leases would be in the target company name; there should not be an issue," said an investment banker who was consulted by a cement company to buy Reliance cement assets.
The company later decided not to participate in the bidding as it did not fit its company strategy well, the banker added.
Cement demand in the central India market took a hit in the last two quarters due to weak monsoon and tepid infrastructure demand. In the September quarter, Reliance Infrastructure cement division reported a loss of 50 crore.
The asset is likely to remain under stress for another 12 months before demand revives in the central India market, according to Amey Joshi, associate director, corporate, at India Ratings and Research, the local unit of Fitch Group Inc. the US-based ratings agency.
“Demand in the central India market at present is under pressure and this will continue for another 12 months. As a long-term plan, the acquisition will be a good decision, but would come with stress for the next one year for the buyer. Organic capacity addition is unlikely in this market as limestone reserves is an issue," Joshi said.
Reliance Group companies have sued HT Media Ltd, Mint’s publisher, and nine others in the Bombay high court over a 2 October 2014 front-page story that they have disputed. HT Media is contesting the case.
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