Mumbai: A clause in the new Mines and Minerals (Development and Regulation) Act 2015 barring the transfer of mines that were not allotted through auctions seems to be hampering mergers and acquisitions (M&As) in the mining sector.
UltraTech Cement Ltd, country’s largest cement producer, has sought clarification from the government over the transfer of limestone reserves as part of its deal to buy Jaypee Group’s two Madhya Pradesh cement assets, two persons familiar with the development said.
“Jaypee and UltraTech are seeking a clarification over the transfer of limestone reserves due to the new Mines and Minerals Development Regulation Act (MMDR)," a banker from a public investment bank directly involved in the deal said.
According to a clause in the new Act, transfer of the mining licence is allowed only for mines that have been auctioned. Most of the operational limestone mines in India were allotted and not auctioned. The Act lays the foundation for such reserves to be auctioned going forward.
Meanwhile, the legal fraternity is divided on whether this clause will have a retrospective impact or not, forcing cement companies to seek a clarification to finalize deals.
“The company (UltraTech) has sought the clarification from the state government, which in turn referred the matter to central government," said the second person close to the development.
In December 2014, in a ₹ 5,400 crore deal, UltraTech agreed to buy Jaiprakash Associates’s integrated cement plant with clinker capacity of 2.1 million tonnes per annum (mtpa) and cement grinding capacity of 2.6 mtpa at Bela in Madhya Pradesh.
UltraTech also agreed to acquire a second plant at Sidhi with a clinker capacity of 3.1 mtpa and cement grinding capacity of 2.3 mtpa. The deal included access to the limestone reserves in Madhya Pradesh to be used as raw material for these capacities.
The government has sought legal opinion on the interpretation of a clause in the new Mining Act that has affected corporate M&As in the mining and resources sectors as it bars the transfer of mines that were not allotted through auctions, said The Economic Times in a report on 21 August.
This could have a likely impact on the ₹ 5,000 crore Lafarge deal to sell its eastern India assets to Birla Corp and UltraTech’s deal with Jaypee Group for the Madhya Pradesh cement assets, the report said.
A detailed email query sent to UltraTech and Jaiparakash Asscociates on Monday evening remained unanswered.
Access to a limestone reserve is a significant factor in deciding the viability of a cement plant and in some cases also the value of the asset put for sale. “The matter would be resolved shortly and it would not impact the deal in any manner," the second person quoted above said about the closure of the deal between Jaypee and UltraTech.
In August, Grasim industries Ltd chief financial officer Sushil Agarwal said at a press conference: “The deal with Jaypee should be complete by the fourth quarter of the current financial year." Grasim holds about 60% stake in UltraTech.
The MMDR Act may not impact M&As in other sectors like steel. “In steel, most of the mining leases are in the hands of the larger companies, who are the buyers that bankers are approaching and not sellers, so the issue of transfer of lease will not arise," said a second banker from a public investment bank, who deals with steel companies.