Mumbai: Orient Cement Ltd, part of the CK Birla Group, said on Thursday it had agreed to purchase a pair of cement businesses from Jaypee Group for an enterprise value of Rs1,950 crore, as it seeks to expand to new markets.
Orient will buy a 74% stake in Bhilai Jaypee Cement Ltd (BJCL), with a capacity of 2.2 million tonnes per annum, from Jaiprakash Associates Ltd at an enterprise value of Rs1,450 crore. BJCL has an equity value of Rs850 crore excluding debt of Rs600 crore, said Deepak Khetrapal, chief executive, Orient Cement.
For the 74% stake, Orient Cement will pay Rs600 crore, he said. The remaining 26% stake in BJCL is held by Steel Authority of India Ltd (SAIL).
Orient will also acquire the 2 million tonne per annum (mtpa) Nigrie Cement grinding unit in Madhya Pradesh from another Jaypee Group firm, Jaiprakash Power Ventures Ltd, for Rs500 crore, including its debt of Rs.90 crore. Orient Cement said it will fund the two transactions through a mix of internal accruals, debt and equity.
The Jaypee Group will get about Rs1,000 crore from the two deals that it is expected to use to cut debt. Jaypee Group’s flagship company Jaiprakash Associates had a debt of Rs58,250 crore as of 31 March.
In a separate filing on Thursday, Jaiprakash Power Ventures said it is in discussions with its lenders on further steps in its strategic debt restructuring (SDR) exercise. The power company’s lenders had in July recommended SDR, which allows creditors to convert debt into equity and take over the management of defaulting companies.
Jaypee Group has over the past two years been pushed by lenders to sell its assets, transfer ownership of land parcels and even hand over the keys to the group’s headquarters in Noida to pare debt. Over the past year, it has sold three power plants to JSW Energy Ltd. In July, Aditya Birla Group-controlled UltraTech Cement agreed to buy Jaiprakash Associates’ 21.1 mtpa cement assets for Rs16,189 crore.
Khetrapal said unlike the deal with UltraTech, the two latest cement transactions have not been driven by lenders of the Jaypee Group.
“Downturn in the economy especially in the infrastructure sector has impacted companies who leveraged their balance sheet to build infrastructure projects for the country. Divesting of assets specially those which have commercial life of over 40 years is intended to make JAL emerge stronger,” Manoj Gaur, executive chairman, Jaiprakash Associates said in a statement.
The deals would take at least a year or two from completion for Orient Cement to start benefitting from them, said an analyst at a securities house, asking not to be named.
“The deals are a positive for Jaypee Group because they were not making money on these assets and this will help reduce debt. It will be critical for Orient Cement to turn around the assets; they might also need to raise some equity to maintain their debt-to-equity ratio,” he said.
The acquisition will also give Orient Cement access to the supply deficit markets of East India and Uttar Pradesh and a presence in central India the company said in a presentation on Thursday. The acquisition, which is expected to be completed in the first half of 2017, is subject to approvals from SAIL, the Competition Commission of India (CCI) and other regulatory approvals, Orient Cement said.
The company was spun off from Orient Paper and Industries Ltd and listed in 2013 to create a pure play cement company. It currently has a production capacity of 8 mtpa; the acquisition will take its total capacity to 10.2 mtpa. The firm plans to increase capacity to 15 mtpa by 2020.
Moelis & Co. was the financial adviser to Orient Cement in the transactions; Cyril Amarchand Mangaldas was the legal counsel. EY was the transaction adviser; Vaish Associates the legal adviser to Jaiprakash Associates.