In a move aimed at establishing a pan-India presence, Dalmia Bharat has signed a binding agreement to acquire Jaiprakash Associates’ cement, clinker and power plants at an enterprise value of Rs 5,666 crore.

New Delhi-headquartered Dalmia Bharat, through its wholly-owned subsidiary Dalmia Cement (Bharat) or DCBL, will take over cement plants with 9.4 million tonne capacity, clinker capacity of 6.7 MT and thermal power plants with 280 MW capacity.

The units, situated in Madhya Pradesh, Uttar Pradesh and Chhattisgarh, will be acquired from Jaiprakash Associates (JAL), Jaypee group’s flagship company, and Jaiprakash Power Ventures. The transactions are subject to due diligence, statutory and regulatory approvals.

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Following the deal, Dalmia Bharat, the country’s fourth‐largest cement manufacturer, will increase its installed capacity from the current 37 MTPA to 46.4 MTPA, bringing it extremely close to third-largest player Shree Cement’s capacity of 47.4 MTPA.

“In order to repay loans … and concentrate in its other core areas of working, JAL has decided to divest from the cement business completely. With the sale of cement capacity of 9.4 MTPA in favour of DCBL… having demonstrated its creditable working, JAL will further cement its credentials of being a trustworthy organisation in infrastructure segment of the country in times to come,” JAL executive chairman Manoj Gaur said.

Stocks of both companies reacted positively to the news, with shares of Dalmia Bharat closing 3.5 % higher at Rs 1,912, while JP Associates remained locked in a 10% upper circuit through the day and Jaiprakash Power ended 10.7% higher at Rs 8.30.

This transaction, proceeds of which will be primarily used to pare JAL’s substantial debt of over Rs 25,000 crore, will lead to its complete exit from the cement business. The group’s decision comes against the backdrop of a recent plea by lead banker State Bank of India to initiate insolvency proceedings against JAL.

Coeus Advisors assisted JAL as transaction advisors, while EY was the financial and tax advisor, and Vaish Associates the legal advisor to the transaction.

During 2014 and 2017, JAL had divested more than 20 MTPA cement capacity to UltraTech Cement, and in 2015 sold its controlling stake of more than 2 MTPA cement capacity to Dalmia Group. This was done to reduce debt and repay lenders. In October, JAL and Jaiprakash Power Ventures had announced plans to divest cement businesses and certain non-core assets to reduce debt.

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This acquisition will enable Dalmia to expand its footprint into the central region and help it emerge as a pan-India cement company with a 75 MT capacity by FY27 and 110‐130 MT by FY31. In addition, it will provide the company a 10% capacity share in the central India market that represents close to 15% of India’s cement demand, according to Dalmia Bharat’s investor presentation. Jaypee group firms Jaypee Infratech and Andhra Cement are facing insolvency proceedings, with JIL went into the bankruptcy process in August 2017 after NCLT admitted an application by an IDBI Bank-led consortium.