BackRamco Cements, JSW Cement join race for Lafarge’s assets
The French company's units in Jharkhand and Chhattisgarh are likely to be worth at least $600 million
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Mumbai: The Ramco Cements Ltd and JSW Cement Ltd may bid for French company Lafarge SA’s cement units in Jharkhand and Chhattisgarh in a deal likely to be worth at least ₹ 3,700 crore ($600 million), four people familiar with the development said.
CRH Plc. of Ireland and HeidelbergCement India Ltd are already evaluating these assets, Mint reported on 3 April.
On 7 April 2014, Lafarge and Holcim of Switzerland had announced a $60 billion global merger. As a condition to clear the Indian part of the merger, the Competition Commission of India (CCI) directed Lafarge to sell two of its assets. These include a cement plant and a grinding station with a total capacity of approximately 5 million tonne per annum (mtpa).
Citibank India, which is supervising the sale of both these assets, started the process a fortnight back, said an investment banker, one of the four people mentioned above. “Ramco Cements has shown a keen interest to acquire the asset, as it will give them access to a newer market and complements their expansion strategy," the investment banker said.
A top official from JSW Cement, who did not want to be identified, said his company has been looking for cement assets “and has been part of the discussions for Lafarge assets, too". The discussions are at a very early stage, this official said.
An email sent on Friday evening to Ramco Cements and JSW Cement went unanswered. In their emailed response to a query, Lafarge and Holcim said they will not comment on the ongoing divestment process. In an emailed response, Citibank declined to comment for this story.
Holcim’s two local units—ACC Ltd and Ambuja Cements Ltd—have a combined annual capacity of 58.75 million tonnes (mt), making it the country’s second-biggest maker of the building material. Lafarge has a cement production capacity of 11 mt in India, according to its website.
The global merger is expected to close in July, giving its sale advisors only two months’ time to conclude the sale.
Moreover, CCI’s requirement that anyone with more than 5% market share in the region cannot bid for these assets, has ruled out firms such as UltraTech Ltd and Shree Cements Ltd.
“We wanted to bid for the asset, but we will cross the CCI cap ratio by December 2015, as we will have our new capacity coming in," said H.M. Bangur, managing director at Shree Cement.
The asset is attracting global attention, too.
An investment banker, who did not want to be named because he is not authorised to speak to the media, said his bank has pitched the assets to some of its global clients “because we believe it is a good opportunity for them to enter the eastern market." The banker, who said the details will be finalised in another 15 days, said it has advised its clients to bid around $600 million for the assets.
Eastern India has seen a significant amount of deal activity in the last few years, but it is global private equity fund KKR-backed Dalmia Cement (Bharat) Ltd that has bought most of the assets put on block.
In February, Dalmia Cement increased its stake in OCL India Ltd—which has assets in Odisha and West Bengal—from 48% to 78%. In December 2014, it had acquired the entire stake in Bokaro Jaypee Cement Ltd for a total enterprise valuation of ₹ 1,150 crore.
Earlier, it acquired assets of Calcom Cement India Ltd and Adhunik Cement Ltd.
In the fifth-largest domestic merger and acquisition last year, UltraTech Cement Ltd bought two cement plants and related power assets of Jaiprakash Associates for $870 million.
According to a research report by Spark Capital last month, cement demand grew at a moderate 4% compounded annual growth rate (CAGR) over financial years 2013-15 led by a significant slowdown in infrastructure activity and real estate activity in tier-1 cities.
But the investment bank wrote it expects demand to recover “to nearly 8% CAGR over financial years 2015-18 led by a pickup in infrastructure activity, government spend on housing and improving micro environment".
Another reason for cement companies scouting for assets in the eastern zone, say analysts, is the fact that traditionally, cement prices in the region command a premium when compared to northern, central and western regions.
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