Jaiprakash Associates To Sell Cement Assets Worth Rs 1,950 Crore
Jaiprakash Associates sells cement units to pare debt.
Jaiprakash Associates Ltd. (JAL) plans to sell two cement assets to CK Birla group company, Orient Cement Ltd., for Rs 1,950 crore in an effort to raise funds and service its debt. Orient Cement will buy a 74 percent stake in Jaiprakash’s Bhilai cement plant for Rs 1,450 crore and pay Rs 500 crore for the Nigrie cement grinding unit , both companies said in separate media statements.
The boards of Orient Cement and Jaiprakash cleared the transactions on Thursday.
Bhilai Jaypee Cement Ltd. (BJCL) has a cement capacity of 2.2 million tonne per annum (mtpa) and clinker capacity of 1 mtpa, the media statement said. JAL owns 74 percent stake in BJCL while the remaining 26 percent stake is owned by Steel Authority of India Ltd.
BJCL has posted losses since it started operations in 2009. It has total assets worth Rs 843.08 crore, net worth of Rs 167.89 crore and total debt of Rs 124 crore as on March 31, 2016.
The 2 mtpa Nigire cement grinding unit which began operations in 2015, is wholly owned by another Jaypee Group company, Jaiprakash Power Ventures Ltd. (JPVL). JAL had incurred an expenditure of Rs 305 crore on the grinding unit and achieved a turnover of Rs 90.7 crore, as of March 31, 2016, according to the company’s filings with the stock exchange.
“Divesting of assets specially those which have commercial life of over 40 years is intended to make JAL emerge stronger,” Manoj Gaur, Executive Chairman of Jaiprakash Associates said in the statement.
The Orient Cement deal will require approval from SAIL, lenders of BJCL, as also the competition regulator and other relevant authorities, both companies said in their press statements. The transaction is likely to be closed in the first half of 2017.
Orient will fund the transaction through a mix of internal accruals, debt and equity. Chairman CK Birla said that the acquisition will boost the company’s production capacity.
The current proposal to acquire BJCL from JAL is a significant step towards accomplishing our current mission of reaching a capacity of 15.0 mtpa by 2020. The assets proposed to be acquired will also add a new and strong dimension towards diversifying our market reach and helping Orient Cement to further sweat its existing assets.CK Birla, Chairman of CK Birla Group, said in the media statement
Orient Cement currently has 8 mtpa of cement manufacturing capacity across three units in the states of Telangana, Maharashtra and Karnataka. This acquisition will take its total capacity to 10.2 mtpa and provide it an entry into the high growth central and eastern regions.
Divesting Assets To Pare Debt
Over the last two years JAL has sold or signed agreements to sell seven assets (excluding the Orient Cement deal) at an enterprise value of Rs 33,600 crore.
In this financial year, the company sold its 500 MW (megawatt) thermal power plant to JSW Energy for Rs 2,700 crore and cement plants of 21.2 mtpa capacity to Ultratech Cement at an enterprise value of Rs 16,000 crore.
JAL had a consolidated debt of Rs 69,800 crore as of March 31, 2016, according to the company’s annual report. The consolidated debt is expected to come down to approximately Rs 53,000 crore after the Ultratech deal, according to BloombergQuint calculations.
JAL's whole-time director Rahul Kumar had told BloombergQuint in an interview, following the Ultratech deal that the company has divested a fair share of its assets as part of the corrective action plan agreed upon with lenders, and that he does not foresee further divestments by the group.
