After having divested its cement plants in Gujarat, Madhya Pradesh, Haryana (Panipat) and Jharkhand (Bokaro) to raise around Rs 10,000 crore, debt-laden Jaiprakash Associates is now close to selling another plant — at Sikandarabad in Uttar Pradesh — to German major Heidelberg Cement for around Rs 500 crore.
“Heidelberg is in advanced stages of negotiations with JP Associates to buy the 1 million tonne per annum Sikandarabad cement unit for around Rs 500 crore,” an industry source aware of the development told FE. However, when contacted, both JP Associates and Heidelberg Cement declined comment on the issue.
“JP Associates’ cement grinding unit at Sikandarabadis strategically located in a limestone rich region and has the potential to assist in serving markets in the western belt along with Delhi,” said a consultant.
If the deal materialises, this would be the fifth cement asset sale by the JP Group in little over a year.
The group is looking to sell assets, including cement and power plants, to pare its hefty debt burden. The aggregate debt of the group at the end of FY14 stood at around R55,000 crore. Though it has so far divested assets worth Rs 15,000 crore, the impact of the asset sales is yet to reflect on the group’s balance sheet.
It aims to cut down debt further by around Rs 10,000 crore by the end of the current fiscal.
In fact, sources said that the JP Group is also looking at selling two more of its cement units – Baga and Bagheri in Himachal Pradesh and Balaji in Andhra Pradesh — but the matter is stuck due to valuation issues. Aditya Birla Group’s Ultratech Cement and Heidelberg have been in talks for acquiring these units.
So far, the JP Group has divested around 13 million tonne of its overall cement capacity and is left with around 23 mt, which also it plans to sell to raise funds to reduce its debt.
Heidelberg, which entered the country in 2006 through a 50:50 joint venture in Indorama Cement and acquired a majority stake in Mysore Cement, currently operates through its listed arm Heidelberg Cement India and is basically a regional player with a presence in central and northern markets of the country. It has a capacity of 5.4 million tonne, comprising two integrated plants and a grinding unit.
Its parent firm, Heidelberg Cement AG, which underwent a financial trouble in 2007 post its acquisition of Hanson, has returned to financial health after a series of restructuring and cost cutting exercise and now wants to ramp up its capacity in India through acquisitions.
“JP may find it difficult to sell its units in the South, since few players want to invest in this region, because it would take some years before demand can catch up with the situation of over-supply in this region,” said an analyst.
“Given increasing challenges in setting up new plants and expectations of a demand up-cycle, we see acquisitions as the preferred expansion route for large companies. This gives companies immediate access to markets, compared to a gestation period of five to seven years for new plants, as well as to surplus land and quality limestone reserves, said a JP Morgan report.
The previous buyers of JP Associates’ cement units/associated power plants were Ultratech, Shree Cement and Dalmia Cement.