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JSW Cement, Birla Corp. among bidders for Reliance Infrastructure cement assets

Anil Ambani-controlled Reliance Infrastructure Ltd has received three final bids for its cement assets, according to two people directly involved in the transaction.

JSW Cement Ltd has submitted its final bid, said a third person involved in the bidding process. Birla Corp. Ltd is also among the three bidders, said a fourth person, an investment banker. Mint could not ascertain the name of the third bidder and whether private equity funds are partnering any of the bidders.

On 5 November, Reliance Infrastructure said it would sell its cement assets totalling 5.6 million tonnes by March to focus on its newer defence business. Reliance Infrastructure holds its cement assets under unit Reliance Cement Co. Pvt. Ltd. At the time, the company had said that seven potential buyers have submitted preliminary expressions of interest to buy its cement business.

Carlyle Group, Blackstone Group Lp 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 among the seven shortlisted bidders for the cement assets, Mint reported on 4 December.

An email sent to Reliance Infrastructure, Birla Corp. and JSW Cement on Monday remained unanswered.

Reliance Cement’s capacity is spread across four states and includes an integrated unit in Madhya Pradesh and grinding units in Uttar Pradesh, West Bengal and Maharashtra. It is also one of the few large cement capacities up for sale.

For JSW, a buyout of Reliance’s cement assets would help the company increase market share quickly from its installed capacity of 6 million tonnes. The company had also initially expressed interest in the assets sold by Lafarge SA in east India as part of the global merger between Holcim and Lafarge. Those assets were eventually bagged by Birla Corp.

According to the first two people cited above, Birla Corp.’s interest in Reliance’s cement assets comes as a surprise.

Birla Corp. has also spent Rs.5,000 crore to buy Lafarge’s assets which will add 5.15 million tonnes to their capacity. If the company also manages to buy Reliance Cement’s assets, it will take their capacity up to 20 million tonnes.

For the quarter ended September, Birla Corp. reported a net 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. The company’s debt-to-equity ratio is relatively low at 0.53 time at the end of March.

Cement analysts, however, do not expect Reliance’s cement assets to be sold at a high valuation. “The assets have a nameplate capacity of five million tonnes, but we do not know the operating capacity. We are talking about Chinese plant machinery, in a market which is currently seeing an oversupply. Given there is no waste-heat recovery and captive power capacity in place, it is difficult to stretch the deal value beyond $550 million (Rs.3,641 crore). In case, the company has access to significant limestone reserves it may add to the value,” said Nitin Bhasin, head of research at Ambit Capital.

It is not clear whether the company would continue to seek bids for the assets if the current bids do not match its expectations.

“Three bids have been received so far, it is early to say if there would be more or who the company will select,” said one of the two people mentioned at the beginning of the story.

Source: http://www.livemint.com/