Three-Year Wait Comes to an End For LafargeHolcim
Government allows LafargeHolcim to consolidate its Indian operations after three years.
LafargeHolcim Ltd. gets to complete the consolidation of its Indian cement business three years after the boards of ACC and Ambuja Cement approved the transaction. The government today allowed Ambuja Cement Ltd. to acquire 24 percent stake in its holding company, Holcim (India) Pvt. Ltd., from Holderind Investment Ltd.
The cabinet committee on economic affairs, chaired by Prime Minister Narendra Modi, approved the proposal which will subsequently allow for a reverse merger through a share swap and will result in an outflow of Rs 3,500 crore.
These transactions would enable the LafargeHolcim group to create a linear corporate structure (with Ambuja and ACC becoming parent and subsidiary) with a view to harvest significant synergies from India operations.Press Information Bureau statement on cabinet decision
The Mega M&A
The boards of Ambuja Cement and ACC had approved this transaction on July 24, 2013. In 2013, Holcim undertook restructuring of its Indian operations to get access to cash on the books of Ambuja Cement. The restructuring was undertaken primarily due to pressure from global rating agencies to improve Holcim’s worsening credit profile. Holcim subsequently announced the merger with Lafarge to form LafargeHolcim in April 2014, and the global merger was completed in July 2015.
The Transaction
Ambuja Cements will acquire a majority stake in ACC from LafargeHolcim’s arm, Holderind Investments, for Rs 3,500 crore and will issue fresh shares to LafargeHolcim. Post the transaction, ACC will become a subsidiary of Ambuja Cement. LafargeHolcim will own 61.39 percent of Ambuja Cement and 0.29 percent of ACC.
Minority Investors Protest
This transaction was seen by minority investors as an attempt to repatriate cash from the books of Ambuja Cement, without losing control of both subsidiaries. Rating agency CRISIL in its December 2015 report, said the cash outflow is part of a one-time restructuring and the extent of future outflows from the Indian operations will be limited to dividend payouts.
Despite the one-time payout, the ACC-Ambuja Cement combine will maintain robust financial risk profile over the medium term with low debt, strong cash accrual, and healthy liquidity. Change in financial exposure to LafargeHolcim, significant debt-funded incremental capex or acquisition, or changes in the management’s financial policy will be key rating sensitivity factors.CRISIL Report on December 28, 2015
Combined Market Share of 17 Percent
Ambuja Cement had a total installed capacity of 28.75 million tonnes per annum (mtpa) as on September 30, 2015, translating into market share of 8 percent. The company has strong market position of 24 percent in western and 15 percent in northern India.
ACC had a cement capacity of 30.5 million tonne per annum at the end of September 30,2015. The two companies together have share of 17 percent in the Indian cement market. Their nationwide presence shields operations of both companies from regional price volatility and demand-supply imbalances, said CRISIL.