Adanis bring in $3bn as promoter equity for the Holcim deal

On 15 May, the Adani family said the acquisition would be funded through an offshore special purpose vehicle, which will acquire the Swiss company’s entire stake in two of India’s leading cement companies.

“The said offshore entity has been created in Mauritius in which the promoters plan to infuse $3 billion as equity," said one of the two people cited above, both of whom spoke on condition of anonymity.

“The acquisition is fully funded by way of approved commitments from our relationship banks—Barclays, Deutsche Bank and Standard Chartered Bank and equity infusion by the Adani family," Adani said on Sunday.

Some of the promoter equity is expected to be raised from a prominent sovereign wealth fund based in West Asia, the first person said, adding, “the remaining portion will be funded via debt which will be raised by the promoters in their personal capacity."

“A clutch of foreign banks will fund close to $7 billion in debt, which will initially be raised as a term loan, against which lenders will have a charge on the assets," the second person said, adding, “the debt portion will be eventually refinanced via bonds."

A query emailed to Adani group remained unanswered till press time.

On Monday, the Adani family announced separate open offers to the public shareholders of the two cement companies to acquire an additional 26% stake in them. Adani has offered to buy ACC shares at ₹2,300 apiece and Ambuja shares at ₹385, spending a total of ₹31,139.5 crore if the open offer is fully subscribed. On Monday, shares of ACC and Ambuja closed 3.7% and 2.59% higher at ₹2,194.90 and 368.10, respectively.

In an analysts’ call on Monday, Jan Jenisch, chief executive officer of Holcim, the world’s largest cement maker, said the group does not expect any capital gains tax liability from the 6.4 billion Swiss francs it will receive from the sale. “The transfer of shares will take place between Holcim Netherlands and the Adani family Mauritius SPV, and the deal will fall under the ambit of India-Netherlands bilateral tax treaty," the first person added. Under India’s agreement for the avoidance of double taxation and prevention of fiscal evasion with the Netherlands, investments by Dutch firms get exemption from capital gains when shares in Indian companies are sold, subject to certain conditions. Mint reported in April 2019 that India has been in negotiations with the Netherlands to amend the tax treaty to secure greater taxation powers. Analysts said the deal was struck at a significant premium of 9% and 7% to the Friday closing price of ACC and Ambuja, respectively. Further, the agreed deal value ($10.5 billion, including the open offer) meets market expectations of a deal between $10 billion and $11 billion, said Uttam Kumar Srimal, senior research analyst at Axis Securities. “Since the deal has happened at a premium to market price, it is working in favour of both companies," added Srimal.

The valuation assigned to ACC works out to be $132/tonne (12.9 times 12 months’ trailing enterprise value or EV/Ebitda), whereas the valuation assigned for Ambuja works out to be $226/tonne or 18.2 times 12 months’ trailing EV/Ebitda, said Motilal Oswal Financial Services Ltd. For the combined entity, EV/tonne works out to be $168/t (14.9 times 12 months’ trailing EV/Ebitda). The valuations on a replacement cost basis remain fair, looking at the fact that ACC has higher dependence on southern Indian markets and also has old capacities, said Motilal Oswal analysts. Comparatively, Ambuja has been a regional player and has generated stronger Ebitda per tonne compared to ACC, said Motilal analysts.