Lenders to Jaiprakash Associated (JAL), led by ICICI Bank, concluded the largest bad debt resolution in history with the sale of the cement business of JAL and its associate Jaypee Cement Corporation (JCCL) to UltraTech Cement for an enterprise value of Rs 16,189 crore. With this deal, bad debts worth Rs 12,000 crore get transferred from a defaulting company to a triple A-rated company, helping banks bring down their NPAs.
The sale of the cement business is part of an overall three-part restructuring of JAL. The other two legs of the exercise involve monetising the company’s land holdings and restructuring the balance business, which include an EPC division, hospitals and hotels. However, unlike the cement business, which has overnight become a standard asset from an NPA, the other businesses can be upgraded only after a year.
“This is the largest asset resolution in the country so far and I hope that this landmark transaction will pave the way for more such resolutions,” said Chanda Kochhar, MD & CEO, ICICI Bank. “It is also heartening to note that this is the largest transaction in India’s cement industry, thus far.”
The acquisition of Jaiprakash’s six cement plants and five grinding units , with an annual capacity of 21.2 million tonnes, has not only consolidated UltraTech’s leadership position in India by a large margin but has also made the company the fourth largest cement player in the world (excluding Chinese companies from the list). UltraTech now has a size of 93 million tonnes including its four-million-ton capacity in the Middle East.
UltraTech chairman Kumar Mangalam Birla said, “The acquisition fills the gap in our geographic presence like in Andhra Pradesh and UP. At the same time, it strengthens our presence in certain regions like Himachal Pradesh and Uttarakhand.”
UltraTech will also be spending an additional Rs 470 crore to complete the construction of a four-million-ton grinding unit in Uttar Pradesh. Birla said that the acquisition has increased the company’s debt to equity ratio from 0.01 to 0.6, which is very low.
The transaction inspires hope for the banking sector as it demonstrates that lenders can persuade businessmen to sell their crown jewels to help settle dues. The deal comes at a time when lenders are utilising the bankruptcy law to proceed against 12 of their largest defaulters.
The Jaiprakash-UltraTech deal took a year and three months to fructify. Lenders say that this was because it was the first of such cases. There were three factors that added to the challenge of scale. First, there was the uncertainty over transfer of mines as the Mines and Minerals (Development and Regulation) Act was amended only after the deal was struck. The new legislation was key for transfer of mines. Second, at the time of the deal, the approval had to be sought by high court whereas now M&A proposals go to the National Company Law Tribunal. Finally, even after the court approval, the parties to the deal had to take necessary clearances from state governments for the said transfer.
“In the next two months, the Jaypee brand will be transitioned into UltraTech,” Birla said. UltraTech commands a premium in the market, earning an ebitda of Rs 1,000 per tonne.
For Updated Commercial news Log on to http://propheadlines.com