Mumbai: UltraTech Cement Ltd’s Rs.15,900 crore deal to buy the cement assets of debt-laden Jaiprakash Associates Ltd has run into a snag over the latter’s failure to meet some commitments linked to the transaction, said two people with direct knowledge of the matter.
“Jaypee Group has not met certain financial commitments including clearing statutory dues and providing necessary working capital for the plants under review. The group has also sought additional funding (from UltraTech) before the consummation of the deal,” said one of the two people.
The deal, however, has not been called off yet and efforts are under way to salvage it.
“Both parties are in advanced discussions to iron out the issues. We have some more time to conclude the deal. We are hoping for an amicable resolution,” the person cited above added.
A second person with direct knowledge of the discussion confirmed the development. Both spoke on condition of anonymity.
“Our transaction with Jaiprakash Associates is on course,” said a spokesperson for UltraTech.
On 31 March, UltraTech and Jaiprakash Associates signed a definitive agreement for the sale of Jaiprakash’s cement division. Under the agreement, UltraTech was to purchase 21.2 million tonnes in cement capacity located across five states for Rs.15,900 crore. UltraTech was also to pay Rs.470 crore on the completion of Jaiprakash’s under-construction cement plants, which were part of the deal. In February,UltraTech called off its deal with Jaiprakash Associates for the purchase of two Madhya Pradesh cement assets forRs.5,400 crore due to lack of required regulatory approvals for the transfer of related mining assets. The two Madhya Pradesh cement assets were subsequently folded into the larger deal for the sale of Jaiprakash’s entire cement division.
The sale is crucial for Jaiprakash Associates, which is seeking to reduce debt by raising money through asset sales. As of 31 March, Jaiprakash Associates had consolidated debt of Rs.58,250 crore.
The deal with UltraTech was largely driven by Jaiprakash Associates’ lenders to help reduce their exposure to the infrastructure conglomerate.
In September 2015, Jaiprakash Power Ventures Ltd sold two of its hydro assets to JSW Energy Ltd for Rs.9,200 crore.
The debt pile-up has been the result of aggressive bids to build infrastructure projects in the past decade when India’s economy was growing rapidly and capital costs were low. Most of these projects were hit by delays in securing mandatory approvals and policy issues.
A cement analyst at a domestic brokerage said neither company will be affected if the deal does not go through.
“It is just an opportunity lost for UltraTech, and Jaiprakash Associates was not gaining much in terms of cash proceeds. It will be a hit for the banking system as the deal was to help pay off debt,” said the analyst, who did not want to be identified.
Source: Mint