Coal news and updates

The Rajya Sabha on Monday approved an enabling legislation to make it easier for mergers and acquisitions (M&A) of steel and cement companies reeling in the aftermath of the collapse in global commodity prices.

The legislation will also help alleviate a bad-loan crisis afflicting commercial banks, many of which have heavy exposure to steel and cement companies.

Since Lok Sabha has already approved the proposed law, The Mines and Minerals (Development and Regulation) (Amendment) Bill, 2016, is just one step away from becoming a law—it now only requires the President’s signature.

The legislation will facilitate UltraTech Cement Ltd’s deal with Jaiprakash Associates Ltd to acquire its 21.20 million-tonne cement capacity for Rs.15,900 crore.

Once the Bill is signed into law, there will be no bar on the transfer of mining leases.

In February, LafargeHolcim called off its deal with Birla Corp. Ltd to sell its 5.15 million-tonne cement assets in east India, citing the MMDR rules that did not allow the company to transfer mining rights.

The companies acquiring the cement units will now have raw material security as they can access limestone mines belonging to the acquisition targets. In cases where the companies have mortgaged these licences, the lenders will be able to transfer the licence to a potential buyer, which will help creditors to recover some of their dues.

“The amendment enables transfer of captive mines on a basis similar to that allowed for mines that are won through an auction. This eliminates uncertainty that held up mergers and acquisitions of resource-based companies earlier, and permits distressed metal and cement producers to sell their production units along with the mines,” said Kameswara Rao, leader of the energy, utilities and mining practice at consultancy PricewaterhouseCoopers India.

According to Debasish Mishra, senior director, Deloitte Touche Tohmatsu India Llp, the metals and minerals sector accounts for a majority of the non-performing assets in the banking sector.

“Lenders will benefit from the amendments proposed in the MMDR Amendment Bill as assets will shift from the books of stressed groups to better-off balance sheets. The change will also help mergers and acquisitions in the metals and minerals industry where assets are stressed,” said Mishra.

Gross non-performing assets (NPAs) of 39 listed banks surged to Rs.4.38 trillion, as of 31 December, from Rs.3.4 trillion at the end of September, according to data collated by Capitaline. Provisions against bad loans surged by 90% between the September and the December quarters.

A rout in commodity prices, which made it difficult for many borrowers to repay debt, contributed to the growing pile of bad loans.

In 2015, the government brought The Mines and Minerals (Development and Regulation) Amendment Bill, replacing a 1957 legislation which stipulated that mining licences could only be auctioned. This amended law allowed transfer of mines allotted through auctions but was silent on captive mining licences handed out in the past on the basis of recommendations of a screening committee. That discouraged deals among companies.

“The amendment will help a lot and was very much needed; while drafting, the new practical situations were not thought of; this has now been corrected,” said H.M. Bangur, managing director at Shree Cement Ltd.

Source: Livemint