Black­stone joins race for Jaypee ce­ment unit

The Pak Banker - - COMPANIES/BOSS -

Global pri­vate equity (PE) in­vestor Black­stone Group LP has joined the list of bid­ders in­ter­ested in the ce­ment as­sets of Jaypee Group, val­ued at more than Rs.20,000 crore.

Black­stone will back Dalmia Ce­ment Bharat Ltd, a sub­sidiary of Dalmia Bharat Ltd, to bid for Jaypee's ce­ment as­sets, ac­cord­ing to two peo­ple in the know of the de­vel­op­ment. They both re­quested anonymity as the ne­go­ti­a­tions are con­fi­den­tial.

An­other global fund, KKR, is also look­ing to bid for the as­sets and is likely to do it alone, con­firmed both the peo­ple quoted above. Aditya Birla Group's Ul­traT­ech Ce­ment Ltd has also placed a bid, said a third per­son fa­mil­iar with the de­vel­op­ments.

On 21 Jan­uary, Bloomberg re­ported that Ul­traT­ech and KKR have sub­mit­ted ini­tial bids for Jaypee's ce­ment as­sets. The sale of Jaypee Group's 20 mil­lion tonnes of ce­ment ca­pac­ity comes against the back­drop of large ac­cu­mu­lated debt at the com­pany, which the man­age­ment has failed to pare down over the years. The group had an es­ti­mated debt of Rs.75,000 crore at the end of fis­cal 2015, ac­cord­ing to the 21 Oc­to­ber edi­tion of bro­ker­age house Credit Suisse's House of Debt re­port.

While the group has been ag­gres­sive in sell­ing as­sets, in­clud­ing a part of its ce­ment ca­pac­ity, "debt lev­els are es­ti­mated to be up 18% over the past two years", the re­port said. With banks de­cid­ing to clean up their bal­ance sheets and re­duce stressed as­sets, the pres­sure on com­pa­nies such as Jaypee Group to sell large chunks of their busi­ness is high.

"The sale of th­ese ce­ment as­sets is be­ing pushed by the lenders to Jaypee Group. If suc­cess­ful, the pro­ceeds would go to­wards tak­ing care of the debt com­po­nent," said an in­vest­ment banker and con­sul­tant for one of the bid­ders. "We do not com­ment on mar­ket spec­u­la­tion," said a spokesper­son for the Jaypee Group. For Black­stone, this is not the first time it is bid­ding for a large ce­ment as­set.

It was an ini­tial bid­der for Re­liance Ce­ment Co. Pvt. Ltd, a wholly-owned sub­sidiary of Anil Am­bani-owned Re­liance In­fra­struc­ture Ltd. The sale of Re­liance Ce­ment is ex­pected to be com­pleted shortly. In May 2015, Black­stone had also placed a bid to ac­quire 5.15 mil­lion tonnes in ce­ment as­sets of French ce­ment firm La­farge SA. The deal, while still not closed, was even­tu­ally bagged by Kolkata-based Birla Corp. Ltd in Au­gust 2015 for Rs.5,000 crore.

This time around, Black­stone has cho­sen to bid along with Dalmia Ce­ments. A spokesper­son for Black­stone de­clined to com­ment. "Th­ese are un­sub­stan­ti­ated and spec­u­la­tive ru­mours. We are not in talks with any com­pany," said a spokesper­son for Dalmia Bharat, adding that it can­not com­ment on Black­stone's be­half. In­ter­est­ingly, KKR un­til re­cently had an in­vest­ment in Dalmia Ce­ment. On 16 Jan­uary, KKR said that it would exit the ce­ment sub­sidiary, but ac­quire an 8.5% stake in the hold­ing com­pany, Dalmia Bharat Ltd.

De­spite its re­la­tion­ship with the Dalmia Group, KKR has de­cided to bid for Jaypee's ce­ment as­sets on its own. KKR al­ready has ex­ist­ing ex­po­sure to the sec­tor through its credit infusion into Andhra Pradeshbased Bhavya Ce­ments Ltd, where it pro­vided debt of Rs.250 crore last year. A spokesper­son for KKR de­clined to com­ment.

The in­creased in­ter­est of PE funds to in­vest in the ce­ment sec­tor emerges from the op­por­tu­nity to gain from the re­struc­tur­ing needed by some of the ce­ment firms, said an ex­pert. "There is a real op­por­tu­nity from the need to cor­rect cap­i­tal struc­ture as some com­pa­nies in this sec­tor that have ag­gres­sively ex­panded their ca­pac­i­ties, largely funded through debt. Some of them have been im­pacted by volatil­ity in ce­ment prices in the back­drop of con­tin­ued in­creases in ca­pac­i­ties and some fairly slug­gish de­mand sit­u­a­tions. PE funds have tra­di­tion­ally pre­ferred sit­u­a­tions such as th­ese where they can po­ten­tially gain from cap­i­tal re­struc­tur­ing," said Srinivas Baratam, MD, Kriscore Fi­nan­cial Ad­vi­sors.

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