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Here’s why companies like Lafarge and JP are selling their cement assets

The Mines and Minerals Amendment Bill, 2015 has prompted cement companies including Lafarge and JP Cement to put their entire cement assets up for sale over the past few weeks.

Earlier, these companies were in the process of selling a part of their assets either to reduce debt in case of JP Cement or to address operational issues in case of Lafarge. However, this option is no more feasible since these companies are not able to transfer their lime reserves to potential buyers in tranches. Lime is a major raw material for cement production. Buying a cement plant without lime reserves makes it unviable since procuring limestone from other sellers inflates transportation costs.

The bill stipulates that a cement company can transfer lime reserves only if it obtained such a reserve through auction. In case of JP and Lafarge, reserves were obtained through government allotments. According to the bill, "The transfer of mineral concessions shall be allowed only for concessions which are granted through auction.

" Lafarge, which has 11MT capacity spread across Chhattisgarh, Jharkhand, Rajasthan, Haryana and West Bengal, will be able to sell its plants in tranches but not the limestone reserve rights because those rights are held by the company and not by individual plants. So is the case with JP Cement, which has 20.3 MT capacity spread across Uttar Pradesh, Himachal Pradesh, Andhra Pradesh and Gujarat. This has made recent acquisitions in the industry almost unviable as not a single cement company owns mine reserves through auction.

To deal with the situation, Lafarge announced sale of its entire cement assets recently as the rights to mine reserves are at the company level and not at the cement plant level and hence, selling its entire India operations will enable it to transfer the mine reserves rights. An analyst with a leading domestic brokerage on the condition of anonymity said, "Because of the amendment in MMDR Act, most mergers and acquisitions in cement industry have not taken off. If there is some amendment done related to this Act, it may trigger new deals in the industry." Selling the entire business also simplifies the tax­related issues, said Rakesh Nangia, who is a managing partner at tax consulting firm Nangia & Co.

SOurce: Economic TImes