Jaiprakash gets four bids for 20 mtpa cement biz

At $140 a tonne, value of deal estimated at Rs 20k cr

Jaypee group-promoted Jaiprakash Associates has received four bids for the cement capacity of 20 million tonnes per year that it has put on the block for paring debt, which was Rs 75,000 crore at the end of last financial year according to a report by Credit Suisse. The bidders include global private equity firm KKR, and domestic players UltraTech and Dalmia Bharat Cement. The name of the fourth bidder could not be ascertained.

GRINDING TIMES

• Bidders for 20 mtpa cement business include global PE firm KKR, and domestic players UltraTech and Dalmia Bharat Cement
• The Jaypee group had an estimated debt of Rs 75,000 cr at the end of FY15, according to a Credit Suisse report
• The group defaulted on repayment of a non-convertible bond last year
• The deal could help the company pare Rs 20,000 crore of debt

CARE Ratings had last year downgraded Jaypee to 'default' after the group defaulted on repayment of a non-convertible bond. The company has now appointed ICICI Securities as the sell-side banker to the deal that has received four bids for initial due-diligence.

The Jaypee group refused to respond to queries from Business Standard.

"The deal involves demerging other infrastructure businesses in Jaiprakash Associates and then selling the standalone cement business, which has a capacity of around 20 mtpa," said a banker familiar with the bidding. "The company is expecting a valuation of over $140 a tonne for these assets." This could help it pare about Rs 20,000 crore of debt.

Analysts, however, said that setting up a new cement plant cost $125-130 per tonne, including land acquisition and mining rights.

The capacity on the block excludes the 2.2 mtpa Bhilai cement plant - a joint venture between Jaiprakash Associates (74 per cent) and Steel Authority of India Ltd (24 per cent) - for which separate bids have been invited. The mining rights in this case are held by the JV company. Also, a 3 mtpa capacity in Andhra Cement held by another group firm Jaypee Development Corporation has been put on the block through a separate bid, for which ICICI Securities is the sell-side banker.

Also, the five-million-tonne annual capacity in Madhya Pradesh that Jaiprakash sold to UltraTech in December 2014 is pending completion. It is facing a challenge on transfer of mining rights for the reserves catering to the plant, as a change in regulation after the deal prohibited this in the event of an asset sale.

On the request of lenders, the government has agreed to make an amendment to this rule in the next session of Parliament, to facilitate such deals. However, lenders are working on future deals through share sale in companies; such deals include transfer of mining rights as well. An UltraTech spokesperson declined to comment on the issue.

In 2014, Kumar Mangalam Birla had said UltraTech's goal was to increase its annual capacity to 100 million tonnes in a decade, from 63 mtpa at the end of last year. The acquisition of Jaypee's 20 mtpa capacity could help UltraTech reach the goal sooner.

The Competition Commission of India (CCI) had earlier imposed a penalty on cement companies on charges of cartelisation. CCI is watchful that no player should get a majority of capacity in a specific region and enjoy undue pricing advantage.

"The way Jaiprakash is spread across the country, UltraTech's acquisition of these assets will not make it a majority owner of cement capacity in any particular region, so such an acquisition will not attract an action from the regulator," said the banker quoted earlier.