UltraTech revises deal for Jaypee Group’s cement assets
UltraTech cuts price for Jaypee's cement assets by Rs600 crore; Karnataka assets have been dropped from the deal
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Mumbai: UltraTech Cement Ltd has revised the price at which it will buy the cement division of Jaiprakash Associates Ltd to ₹ 15,900 crore from ₹ 16,500 crore while signing a definitive agreement for the purchase. The final price has been revised as Jaiprakash’s Karnataka cement assets have been dropped from the deal.
“The parties have agreed to exclude the 1.2 million tonne capacity in the state of Karnataka as envisaged earlier," UltraTech Cement said in a statement to the BSE on Thursday. The statement added that a definitive agreement has been signed for the purchase of 21.20 million tonnes in cement capacity located across five states.
In addition to the ₹ 15,900 crore, UltraTech will pay ₹ 470 crore on the completion of Jaiprakash’s under-construction capacities, which are part of the deal, the company added.
“It is a good decision to limit exposure to the south India market. The ₹ 15,900 crore is a reasonable valuation, not very cheap or expensive for UltraTech," said Amey Joshi, associate director (corporate) at India Ratings and Research, the local unit of Fitch Group Inc.
On 28 February, Jaiprakash Associates said that it had signed an MoU with UltraTech Cement to sell a total capacity of 22.4 million tonnes per annum (mtpa) across Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Uttarakhand, Andhra Pradesh and Karnataka.
The agreement includes an under-construction 4 mtpa plant in Uttar Pradesh. This deal has now been revised to drop the Karnataka cement assets and related mining rights.
“Owing to non-clearance of mining leases, we are dropping the Karnataka plant from the list of proposed acquisition of Jaypee Group’s assets," a senior executive from UltraTech said.
Jaiprakash’s decision to sell its entire cement capacity was driven by a need to reduce debt on the company’s books. The group had an estimated debt of ₹ 75,000 crore at the end of the 31 March 2015, according to the October edition of Credit Suisse AG’s House of Debt report. To bring this down, lenders to Jaypee Group have been pushing the group to sell assets.
On Thursday, ICICI Bank Ltd, one of the main lenders to Jaypee Group, said in a press statement: “Jaypee Group in consultation with ICICI Bank has been selling various assets in its cement and power businesses to take care of its debt obligations. These sales have helped bring down the debt to some extent."
“ICICI Bank has actively worked with the management of Jaypee to sell its entire cement business and this business is now being sold to the Aditya Birla Group. This sale will further bring down the level of debt in the Jaypee Group significantly," said the statement, adding that the bank is working with Jaypee Group to find ways to reduce the debt burden further.
Jaypee Group has already sold two hydropower projects in Himachal Pradesh; cement assets in Gujarat, Jharkhand and Haryana; and wind power assets in Gujarat and Maharashtra in the past two years.
UltraTech’s cement capacity will increase to about 91.1 mtpa and bring it close to its goal of 100 mpta—a target company chairman Kumar Mangalam Birla had set in November 2014.
The assets will give UltraTech access to the markets of Satna (Madhya Pradesh), eastern Uttar Pradesh, Himachal Pradesh and coastal Andhra Pradesh, where it does not have a presence.
The deal is likely to be completed in 12-14 months and is subject to regulatory approvals.
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