MMDR amendment to give $6-bn M&A boost

With the Rajya Sabha passing the amendment to The Mines and Minerals (Development and Regulation) Act, about a dozen mergers and acquisitions (M&As) worth $5-6 billion are expected to fructify.

The 2015 amendment to the Act, which introduced the auction of mines, had barred the transfer of mining leases in case of asset sales if they had not been allotted through an auction. However, there was no restriction on transfer of mines in case a company was sold through the share sale route.

This put several deals in a spot, and some of the deals were called off. Jaiprakash Associates' plan to sell its 5.2 million tonnes per annum (mtpa) cement capacity in Madhya Pradesh to UltraTech Cement for Rs 5,400 crore and Lafarge India's plan to sell 5.15 mtpa cement capacity to Birla Corp for Rs 5,000 crore fell through.
 

"Now the amendment has created an exception for transfer of mining leases for mines, which are for captive use. Once it becomes an Act, it would be possible to transfer these mining leases even though such mines would not have been allotted through an auction," says Sameen Vyas, partner at law firm Luthra & Luthra.

It might take a couple of months before the president gives final approval to the amendment to become an Act.

Lafarge India, which needs to sell assets to meet anti-trust regulator Competition Commission of India (CCI)'s approval for its global merger with Holcim, could also take the asset sale route once again.

Subsequent to the failure of its deal with Birla Corp, 11-mtpa Lafarge India was put on sale, which was approved by CCI. But, this sale was challenged by rival Dalmia Cement in the Competition Appellate Tribunal challenging the CCI's jurisdiction for such subsequent approvals. With the fresh amendment, Lafarge could now take a fresh look on the sale, say bankers.

"Banks provide debt for an asset purchase deal, but they cannot provide it in case of share purchase deals," says Nitin Gupta, partner (transaction advisory services) at EY. "The amendment will help provide flexibility to M&A structuring and financing."

Kumar Mangalam Birla-promoted UltraTech has already got into a subsequent deal with Jaiprakash Associates to acquire 17.2 mtpa cement capacity for Rs 15,900 crore. The deal hinges on the amendment being cleared by the government as it involves asset purchase and not share purchase.

Public sector banks have invoked strategic debt restructuring option for about 20 companies to recover their money from stressed assets. About half of these companies are from sectors such as power and steel, such as Monnet Ispat & Energy, Visa Steel and Electrosteel Steels. Many of these companies have captive mines. An asset sale route will help these banks get better valuation for the assets of these companies.

"We can expect significant rise in control transaction through transfer of such assets now," says Manisha Girotra, chief executive officer, Moelis & Company India. "Public sector banks have a large exposure to such companies from the power and steel sectors, which are in distress. They can now take control and sell those assets which they were not able to do earlier," she says.

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NEW LAWS

• The 2015 amendment to the Act had introduced the auction of mines
   
• It had barred the transfer of mining leases in case of asset sales if they had not been allotted through an auction
   
• Jaiprakash Associates' plan to sell its 5.2 million tonnes per annum (mtpa) cement capacity in Madhya Pradesh to UltraTech Cement for Rs 5,400 crore fell through
   
• Now the amendment has created an exception for transfer of mining leases for mines, which are for captive use
   
• Public sector banks have invoked strategic debt restructuring option for about 20 companies to recover their money from stressed assets