For the Aditya Birla Group company, this marks the largest acquisition of cement assets in India. For a consortium of banks led by ICICI Bank Ltd, it is the conclusion of the biggest “stressed assets" resolution yet in the country.
As part of the deal, Rs12,000 crore of loans on the books of Jaiprakash Associates Ltd will move to UltraTech. From being classified as a non-performing asset, the debt will now be upgraded to AAA status (the highest credit quality).
“This is the largest asset resolution in the country so far and I hope that this landmark transaction will pave the way for more such resolutions," said Chanda Kochhar, CEO, ICICI Bank, the lead banker to Jaiprakash Associates.
The acquisition of Jaiprakash Associates’s cement assets increases UltraTech’s capacity to 93 million tonnes per annum.
UltraTech expects the newly acquired assets to become earnings per share accretive in the next eight quarters, Aditya Birla Group chairman Kumar Mangalam Birla said in an interview.
“The focus now will be on sweating these assets, consolidating and absorbing them. We will also be investing in these assets to upgrade them. We plan to invest around Rs500-700 crore in these assets over the next couple of years," said Birla.
Birla added that despite the size of the acquisition, the financial health of UltraTech remains extremely strong.
“Our debt to equity ratio is 0.6 and the debt to Ebitda (earnings before interest, taxes, depreciation and amortization) is 2.6 times. We have refinanced the debt of the acquired assets," he said.
This debt has been refinanced by the lenders at a lower rate of interest, said two people familiar with the matter on condition of anonymity.
The immediate benefit for the lenders will be in the form of reversal of provisioning, or the money set aside by lenders to cover stressed loans.
In the fourth quarter of 2016-17, lenders had to make additional provisioning because the deal was yet to close. ICICI Bank, for instance, classified Rs5,378 worth of exposure to JP Associates’ cement assets as non-performing in that quarter.
Analysts said that ICICI Bank, Axis Bank, YES Bank and other lenders to Jaiprakash Associates will see benefits to their profitability (on account of this deal) in the first quarter of the current fiscal.
The conclusion of the transaction, which the two parties had entered into in last July, comes amid major developments in the Aditya Birla Group—it is witnessing the merger of group companies Grasim Industries Ltd and Aditya Birla Nuvo Ltd, the spinning off and listing of the group’s financial services business, and a mega telecom merger of its Idea Cellular Ltd with Vodafone Plc.’s Indian business.
UltraTech is not looking at making any major acquisitions in the near future, Birla added. The company plans to make a greenfield investment of around Rs2,600 crore in a 3.5 million tonne cement plant in Madhya Pradesh.
On Thursday, the group’s financial services arm Aditya Birla Capital Ltd signed an agreement to sell a 2.2% stake to PremjiInvest, the family investment arm of Wipro Ltd chairman Azim Premji, for around Rs700 crore in a deal that values the financial services business at around Rs32,000 crore.
Birla said he expects Aditya Birla Capital to list “by middle of August".
As of 31 March, Aditya Birla Capital had assets under management of Rs2.46 trillion and a lending book of Rs38,800 crore.
For Jaiprakash Associates, the completion of the cement deal brings some relief, although as a third person familiar with the matter said, “the group is still highly leveraged".
Its group company Jaypee Infratech Ltd is one of the 12 borrowers the Reserve Bank of India has referred to their creditors for start of insolvency proceedings at the National Company Law Tribunal.
Sapna Agarwal in Mumbai contributed to this story.