Bankers have invoked strategic debt restructuring norms to convert Jaiprakash Associates's debt to equity
Mumbai: In an important board meeting on Monday, the promoters of the debt-strapped Jaypee Group managed to salvage a deal that involved the sale of the conglomerate’s cement assets to UltraTech Cement Ltd, but lost control of the holding company Jaiprakash Associates Ltd to lenders.
Ahead of Monday’s board meeting, the deal with UltraTech seemed to have run into trouble and lenders were threatening to invoke the provisions of the so-called strategic debt restructuring (SDR) provision that allows them to convert debt into equity and take control.
Following the meeting, Jaiprakash Associates said it has approved an amendment to the definitive agreement dated 31 March and also the draft scheme arrangement with UltraTech Cement for sale of its cement business and that of its wholly owned subsidiary, Jaypee Cement Corp. Ltd, comprising identified cement plants.
Mint learns that the bankers also invoked the SDR provision. The immediate implications of this on the company’s management and business aren’t clear. A banker at a state-run lender, who asked not to be identified, said ahead of the board meeting that this provision would help banks accelerate the asset sale process. A second banker at another state-run lender said control would help the banks find “buyers" for the group’s other assets in a “systematic manner".
The total enterprise value agreed upon is ₹ 16,189 crore, an increase of ₹ 289 crore over the original deal value.
The deal involves cement manufacturing capacity of 17.20 million tonne per annum (mtpa) spread over the states of Uttar Pradesh, Madhya Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh, besides a grinding unit of 4mtpa capacity which is currently being built in Uttar Pradesh. UltraTech is to pay an additional amount of ₹ 470 crore for completion of the grinding unit.
The consummation of the transaction is expected to take nine to 12 months.
“Jaypee Group is determined to reduce its overall debt through its proactive divestment initiatives to help the group tide these current turbulent times caused by economic slowdown in the country," said Manoj Gaur, executive chairman and CEO, Jaiprakash Associates.
He added that Jaypee retains some interest in cement after the deal. “Jaypee Group shall retain an aggregate cement manufacturing capacity of 10.6mtpa with plants in the states of Madhya Pradesh, Uttar Pradesh, Andhra Pradesh and Karnataka. The group will continue to leverage its expertise in the fields of engineering and construction, real estate and project execution in a committed manner."
UltraTech did not disclose the rationale behind the increase in enterprise value.
“Jaypee agreed to sell these assets when the market was in distress. Now the cement market is looking up and moving forward, a revision in the deal price is not surprising," said Amey Joshi, associate director at rating firm India Ratings and Research, the local unit of Fitch Group Inc.
“The proposed transaction is essentially a “geographic market expansion" which will lead to UltraTech’s entry into growing markets of India, such as the Satna cluster [in Uttar Pradesh (East) and Madhya Pradesh (East)], Himachal Pradesh, Uttarakhand and coastal Andhra Pradesh," UltraTech said in a statement.
Upon consummation of the deal, UltraTech’s cement capacity will increase to 91.1mtpa.
The sale is crucial for Jaiprakash Associates, which is seeking to reduce debt by raising money through asset sales. As of 31 March, Jaiprakash Associates had consolidated debt of ₹ 58,250 crore.
Over the past two years, Jaypee Group has been pushed by lenders to sell some of its assets, transfer ownership of land parcels and even hand over the keys to the group’s headquarters in Noida to pare debt.
The deal with UltraTech was largely driven by the lenders of Jaiprakash Associates to help reduce their exposure to the infrastructure conglomerate. They had previously sought the central bank’s permission to treat the loan account as a normal one pending the completion of the deal, but that didn’t work out.
“At the beginning of this financial year, banks had put up a proposal to the Reserve Bank of India, where they had said that UltraTech would pay for the deal upfront and this money would be held in a separate bank account, giving lenders the assurance to continue with a standard asset classification on Jaiprakash Associates Ltd’s account. However, the regulator was not happy with the idea and asked banks to follow classification norms strictly," said a person familiar with the deal who spoke on condition of anonymity. According to the first banker, UltraTech also attempted to renegotiate some aspects of the deal, which was not acceptable to the consortium.
In February, UltraTech called off its deal with Jaiprakash Associates for the purchase of two Madhya Pradesh cement assets for ₹ 5,400 crore due to lack of required regulatory approvals for the transfer of related mining assets.
The two Madhya Pradesh cement assets were subsequently folded into the larger deal for the sale of Jaiprakash’s entire cement division. Simultaneously, the government has clarified that related mining assets can be transferred, facilitating several deals in the cement business.
In September 2015, Jaiprakash Power Ventures Ltd sold two of its hydro assets to JSW Energy Ltd for ₹ 9,200 crore.
Jaypee’s debt pile-up is the result of aggressive bids to build infrastructure projects over the past decade when India’s economy was growing rapidly and capital costs were low.
Most of these projects were hit by delays related to land acquisition, regulatory clearances, or access to critical resources including fuel.
Taking note of the decision of the joint lenders’ forum of the company’s lenders to invoke SDR, Jaiprakash Associates said its board has constituted a committee of directors to evaluate various options necessitating financial restructuring as may be applicable with evolving guidelines of RBI and banks to deal with the debt management and take all actions and steps.
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