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Birla Corp set to buy Reliance Infrastructure’s cement assets

Birla Corp. Ltd is set to buy the cement assets of Anil Ambani-controlled Reliance Infrastructure Ltd for about Rs.5,000 crore, according to two people directly familiar with the transaction.

The deal will be sealed within next few days, they said, requesting anonymity.

“It will be signed formally in the coming days,” said one of the two people cited above. “Even though discussions took nearly a month’s time to finalize, other contenders weren’t really considered for the sale.”

Birla Corp.’s unexpected bid for Reliance Cement Co. Pvt. Ltd’s assets came barely three months after the Kolkata-based company agreed to buy French cement maker Lafarge SA’s 5.15 mtpa capacity for Rs.5,000 crore in August.

That deal is still to be concluded because of policy uncertainty over the transfer of mines attached to the cement units.

If Birla Corp. acquires both Reliance Cement and Lafarge’s east India assets, its total capacity would rise to more than 20 million tonnes. It will also help the company expand its presence in central and west India.

“A Rs.5,000-crore valuation is slightly on the higher side. However, these are assets which allow the buyer to increase its presence in the central region and diversify in the western region,” said Amey Joshi, associate director (corporate) at India Ratings and Research, the local unit of Fitch Group Inc.

Birla Corp. currently has facilities in Rajasthan, Uttar Pradesh, Madhya Pradesh and West Bengal.

Others who had submitted binding bids for Reliance Cement are JSW Cement Ltd and private equity (PE) giant Blackstone Group LP.

Binding bids were submitted in the last week of December.

A third person involved in the deal said that Birla Corp. had bid the highest, followed by Blackstone and JSW Cement.

The value of bids submitted by Blackstone and JSW could not be ascertained.

“Birla Corp. is bidding for everything that they can to ramp up their capacity, and they have enough cash in their books to support this acquisition,” said an investment banker, who did not wish to be identified.

“Cement companies are now trading at three different (enterprise value, or EV) levels: the larger companies are trading at nearly $180 EV/tonne, mid-sized ones at $100 EV/tonne and smaller, single-unit capacities at $60 EV/tonne. Birla wants to scale up, and this deal will give an advantage to them to move up to the next league,” added the banker.

Emailed queries sent to Birla Corp., Reliance Infrastructure and Blackstone Group on Friday remained unanswered.

In November, Reliance Infrastructure told stock exchanges that it will sell its 5.6 million tonnes per annum (mtpa) cement business and related assets through a formal process.

The company said that it had shortlisted seven bidders for the asset.

Private equity firms Carlyle Group, Blackstone Group and Baring Private Equity Asia, and cement companies JSW Cement, JK Lakshmi Cement Ltd, Birla Corp.and Chinese cement maker China Resources Cement Holdings Ltd were the shortlisted bidders, Mint reported 4 December.

For the quarter ended 30 September, Birla Corp. reported a profit of Rs.18.48 crore on net sales of Rs.801.78 crore. The company had standalone debt of Rs.1,186.16 crore, according to database provider Capitaline. The company’s debt-to-equity ratio, however, was at a relatively comfortable 0.53 as of 31 March.

Reliance Cement’s capacity is spread across four states: an integrated unit in Madhya Pradesh and grinding units in Uttar Pradesh, West Bengal and Maharashtra.

Reliance Infrastructure is looking to sell the cement and roads businesses to focus on its new defence business, and the company is keen to reduce debt that has been incurred on account of these businesses.

Source: Livemint