Shriram EPC on Monday said it would acquire a 68 per cent stake in Sree Jayajothi Cements Ltd, along with its group companies. The acquisition will be done by Shriram EPC and a special purpose vehicle (SPV) floated by other Shriram Group companies. According to a senior official in the company, the SPV will rope in an outside investor, including private equity later.
Last month, this paper had reported the Rs 50,000-crore Shriram Group was planning to enter the cement industry by acquiring a majority stake in Andhra Pradesh-based cement manufacturer Sree Jayajothi Cements Ltd (SJJCL) by converting its dues into equity. This would perhaps be the first time a vendor would seize control of a company for delayed repayment.
Speaking to Business Standard, T Shivaraman, managing director and chief executive officer, Shriram EPC, said the company’s investment in equity shares (including equity linked instruments/optionally convertible debentures) would be up to a maximum of 19 per cent shareholding in SJJCL, worth Rs 94 crore. The SPV, Spark Environmental Technology, will convert outstanding dues into equity shares worth Rs 258 crore and, in turn, will pick up a 49 per cent stake in SJJCL.
The SPV would include other Shriram Group companies, he said. The structure will allow to rope in potential investors, including strategic investors, to participate in the cement venture, both direct and indirectly, which would allow greater flexibility in structuring the transactions.
Shriram EPC had undertaken an EPC contract for Sree Jayajothi Cements Ltd for setting up a 3.2-mtpa cement plant at Kurnool district, Andhra Pradesh. The total outstanding dues till December 31, 2011, from SJJCL was Rs 563 crore. “Based on an analysis of the industry, the company believes there will be a significant growth in demand for cement in the long term. Hence, with a view to participate in the investment potential in the cement industry, improve the company's finance condition and recover its dues, the company has proposed to convert/restructure a part of its outstanding dues into equity shares,” said the company in an explanatory note to its shareholders.
The Kurnool plant has been operational for the past one year and is expected to end this financial year with a total cement production of over one million tonnes. The capacity utilisation has been restructured due to working capital issues.
At present, SJJCL has also got approvals for mining in areas with indicated reserves of 80 million tonnes of limestone. Additional approvals for a further 180 mt are under process. The integrated unit with a 6,000 TPD Kilio and facilities for producing OGC, PPC and slag cement as well as specialty grades of anti-corrosive and other cements. The location and the reserve base would enable SJJCL to double capacity to six million tonnes.