UltraTech buys Jaypee cement units for Rs 15,900 cr

Industry:    April, 2016

UltraTech Cement, a part of the Aditya Birla group, agreed to buy Jaiprakash Associates’ 21.2 million tonnes per annum (mtpa) cement capacity for Rs 15,900 crore on Thursday. While the deal will take UltraTech’s cement capacity to over 91 mtpa from the present 68 mtpa, it will help Jaypee group reduce its debt. As against the earlier estimate of Rs 16,500 crore, the deal size reduced by about 3.5 per cent or Rs 600 crore, as the transaction excludes the 1.2-million tonne plant in Karnataka. The transaction will help debt-heavy Jaiprakash Associates to reduce its debt, which touched an alarmingly high of Rs 60,000 crore. The lenders, led by ICICI Bank, had asked the company to sell assets so that it could repay its loans. In a statement, UltraTech, said, “The board at its meeting held today (Thursday) approved signing of definitive agreements for the acquisition of cement plants in Madhya Pradesh, Uttar Pradesh, Himachal Pradesh, Uttarakhand and Andhra Pradesh having capacity of 21.2 million tonnes at an enterprise value of Rs 15,900 crore.” UltraTech buys Jaypee cement units for Rs 15,900 cr The deal has valued the cement capacity at $107 per tonne. Of the total 21.2 mtpa capacity, four mtpa is under commissioning. The inking of the deal between UltraTech and Jaypee comes within a month of announcement of the due diligence exercise on February 28. The acquisition is expected to take around 12-14 months to close and is subject to regulatory approvals. Post the deal, Jaypee will continue to have 10.6 mtpa of cement capacity in Madhya Pradesh, Uttar Pradesh, Andhra Pradesh and Karnataka. “We have time and again shown our will to take proactive steps to tide over these turbulent times caused by the economic slowdown,” Jaypee Chairman Manoj Gaur said. UltraTech has plans to take over Jaypee’s Rs 11,500 crore debt as part of the deal, which will be re-financed by it at lower rates due to its good credit rating. For the rest Rs 4,400 crore, UltraTech will fund it by taking additional debt which it would raise on its own balance sheet. There is no upfront payment to Jaypee and the money will be paid on the date of closing. An additional Rs 470 crore will be paid by UltraTech once the grinding unit is completed. On Thursday, the share price of UltraTech traded strong on the BSE and closed at Rs 3,227, up 1.09 per cent. Jaiprakash shares closed at Rs 7 a share, up four per cent. Analysts said the deal will give a major push to UltraTech as the company will get a firm footing in the north – currently dominated by Ambuja Cements, ACC and Shree Cement. The widening gap between UltraTech’s capacity and its arch-rival Swiss giant Holcim (which controls nearly 60 mt of capacity in the Indian cement market via two of its associates – Ambuja Cements and ACC) will help the Birla firm maintain its dominant position in the 400 mtpa Indian cement market. UltraTech, one of the newest players in the Indian cement industry with 12 years of history (post Birla’s acquisition of L&T’s cement business in 2004), is one of the fastest growing companies in terms of capacity augmentation. In 2009, when the Grasim’s assets were being brought under one umbrella of UltraTech – the management had made it clear that going forward the company’s expansion will be more inorganic. An ICICI spokesperson said Jaypee had been selliing its assets in consultation with the bank, and they would associate in the future to reduce the cement company’s debt burden.