Holcim's war chest for India: Rs 4,300 cr

After ACC and Ambuja, Swiss major on expansion overdrive.

Holcim, the world's second largest cement company, plans to invest $1 billion (approximately Rs 4,300 crore) to expand its footprint in India over the next 5-7 years.

This investment is in addition to the Swiss company's investment of $800 million in acquiring a 67 per cent stake in Ambuja Cement India Ltd (ACIL), the closely held investment firm that owns 13.8 per cent in ACC, and to scale up its holding in ACC to 50 per cent. Gujarat Ambuja Cement Ltd (GACL) will finally hold 33 per cent in ACIL.

Confirming Holcim's $1 billion investment proposal, GACL Executive Director Anil Singhvi told Business Standard that GACL would partner Holcim in all future forays by Holcim in the cement sector in India. This "partnership" is, however, not binding on GACL.

According to the shareholders' agreement signed between GACL and Holcim, GACL can go solo for any acquisition if it wishes, while Holcim will always route its acquisition through ACIL in which GACL will continue to hold 33 per cent.

Analysts said $1 billion could get Holcim cement plants with a capacity of 10-12 million tonnes. If the company went in for greenfield projects, it could built a capacity of 15 million tonnes, they added.

Taking ACC's annual production capacity of 18.93 million tonnes into account, the investment will help Holcim catapult itself to a position nearly on a par with India's largest cement maker, Grasim Industries, in 5-7 years. Provided, of course, Grasim's capacity remains unchanged at 30.01 million tonnes.

Singhvi said the proposed open offer for ACC shareholders was expected to open in the first week of March, subject to the necessary clearances.

"The process of launching the offer is on. It is expected that approvals from the Securities and Exchange Board of India and the Foreign Investment Promotion Board will come by the end of the month or by early March," he said. The open offer is priced at Rs 370 a share.

Dismissing criticism that the open offer was not rightly priced, he said the offer was priced at 20 times the price-earnings (PE) ratio, compared with the Sensex valuation of 16 times. The ACC stock today closed at Rs 363.30 on the Bombay Stock Exchange, up 2.73 per cent over Wednesday's close.

According to the deal, GACL has the option to exit its one-third investment in ACIL at any time on or after June 30. Holcim reserves the right to buy out GACL in ACIL anytime on or after January 1, 2008.

Singhvi said the buy-put option was "nothing but a formality". He explained: "Investments in any unlisted company (here ACIL) should come with these details," indicating there was no need to read much between the lines.