Sajjan Jindal-led JSW Group has initiated discussions with private equity (PE) firm Carlyle to join forces and back its bid for Holcim’s Indian cement operations, said people aware of the matter.
Holcim Group, the world’s largest cement maker, is looking to exit India 17 years after its entry, putting its twin listed arms — Ambuja Cement and ACC Ltd — up for sale as part of a global strategy to focus on core markets, ET reported on April 14.
JSW, one of the strong contenders in the fray, is busy organising both equity and debt financing for the multi-billion transaction which, as per industry estimates, could cost Rs 52,000 crore ($7 billion), but may even go as high as Rs 80,000 crore ($10.6 billion), depending on the success of the likely open offers at the two companies.
JSW is open to raising as much as Rs 18,750 ( $2.5 billion) crore from PE groups as a consortium.
Bid Likely in a Month
Considering the large cheque size, more than one PE group is likely to team up and then bid together with JSW Group. “A fund the size of Carlyle can put in $1-1.5 billion on their own and may also rope in co-investors from other bulge bracket funds or their limited partners (LPs),” said a senior executive on condition of anonymity, as the discussions are private.
Apollo Global Management and Synergy Metals Investment Holdings are existing investors in JSW Cement. They invested Rs 1,500 crore last July to accelerate its capacity expansion from the current 14 million tonnes per annum (mtpa) to 25 mtpa by 2023 at a capex of Rs 3,600 crore. JSW is also in discussions with Apollo to join its largest M&A effort till date.
The final deal quantum and other details are still being worked out, but sources said the plan is to finalise everything and bid within the next one month.
Parallel to the PE discussions, the $13-billion steel-to-renewables group is also in talks with a clutch of global banks for share-backed financing.
JSW Steel had about Rs 15,000 crore of cash at the end of September 2021, according to ETIG calculations, while that for JSW Energy was Rs 754 crore. It amounted to Rs 136 crore for the unlisted JSW Cement at the end of March 2021, as per the latest available data.
JSW Group, Carlyle and Apollo Global Management declined to comment.
Global Backing
In 2016, JSW Cement had similar backing from Bain Capital and CVC Capital Partners when it was shortlisted for the final rounds of negotiations to acquire Lafarge’s 11-mtpa India portfolio. It was eventually outbid by Nirma (later renamed Nuvoco Cement).
One of the sources mentioned above said other large funds such as Blackstone, Advent International, CVC Capital and Bain, as well as global sovereign funds, could be approached because of past links, inclination toward traditional economy companies and industrial sector investments globally. However, this could not be independently verified.
“Such kinds of opportunities don’t come knocking every day. When Holcim took over Ambuja and ACC, lots of domestic business houses had the left-out feeling. Two business houses, JSW and Adani, have both shown their intention to make it big in the cement business,” said Rakesh Arora, founder, Go India Stocks. “The big constraint here is the size of the assets. Even if one assumes that the deal happens at current market price, which is very unlikely, one is looking at almost Rs 50,000-60,000 crore ticket size.”
This would mean that smaller cement companies will team up with PE players to make combined bids, he said.
The other constraint will be competition commission approval for companies such as Ultratech because, combined with Ambuja and ACC, they will reach dominant market share in some pockets, Arora said. Still, there will be intense bidding for these prized assets, he added.
Prize Assets
After years of underinvestment in India, both ACC and Ambuja Cement recently turned aggressive on expansion with both announcing plans to take total capacity to 50 mt each. Together, their combined capacity currently stands at 66 mt, and ongoing projects will take it to 78 mt.
ACC and Ambuja have a pan-India presence and, over the past few years, have further integrated operations. Combined Ebitda for calendar 2021 was Rs 6,200 crore and profit after tax was Rs 4,050 crore.
“Given the total cost of the transaction (~$10 billion), we believe only a handful of Indian business houses have the capacity to be the buyer of Holcim’s stake… If Holcim is really keen to exit India, then finding buyers for such a large transaction would be difficult,” said Pinakin Parikh of JP Morgan.
“Any transaction is unlikely to see a large premium, given that current implied valuation for both companies is already at 14x CY22E EV/Ebitda at $164/t on CY22E attributable capacity and $140/t on CY23E attributable capacity (without any holding company discount for ACC stake) and the underlying Ebitda/tonne forecast implies cyclical high Ebitda of last year to be broadly maintained, even as we highlight massive cost pressure for the industry currently,” said Parikh.
JSW Cement had previously taken over Shiva Cement from ACC in 2017. Its current manufacturing footprint spans manufacturing units in Vijayanagar in Karnataka, Nandyal in Andhra Pradesh, Salboni in West Bengal, Jaipur in Odisha, Dolvi in Maharashtra, as well as a clinker plant in Fujairah in the United Arab Emirates (UAE).
Plans to take the company public in 2020 got pushed by two to three years. The business is run by Parth Jindal, son of founder and chairman Sajjan Jindal.
