Levy to cement JP, Lafarge-type deals

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New Delhi | Published: March 12, 2016 1:44:07 AM

Transfer fee to be decided by mines ministry

The transfer fee has not been determined and will now be worked out by the mines ministry. The official said that it will be on a case-by-case basis.The transfer fee has not been determined and will now be worked out by the mines ministry. The official said that it will be on a case-by-case basis.

Though companies like Jaiprakash Associates and Lafarge will be able to sell their cement assets, along with the accompanying limestone mines, with the amendment in the MMDR Act that the Union Cabinet approved on Thursday, they will have to pay a transfer fee to the government, an official aware of the development told FE.

The transfer fee has not been determined and will now be worked out by the mines ministry. The official said that it will be on a case-by-case basis. The broad principle will be that when a mine is being transferred to another party as part of a merger and acquisition deal, the transfer fee will be determined on the basis of the price any other mine in the same or a nearby location has either fetched the government in an auction in the past, or will fetch in the near future. This will raise the cost of acquisition, since the seller will factor this amount into the value of the deal.

“The purpose of the amendment in the current MMDR Act was to enable M&As to help distressed and over-leveraged companies and banks which have lent them. Therefore, the transfer fee payable to the government is justified,” the official said.

On Thursday, the Union Cabinet cleared a proposal to amend the MMDR Act to allow transfer of captive mining leases not granted through auction. This will enable stuck mergers and acquisitions in the mineral space, especially cement, to sail through, thereby enabling banks and financial institutions to liquidate stressed assets where a firm or its captive mining lease is mortgaged.

The immediate beneficiary will be the debt-laden Jaiprakash Associates, which has entered into a binding pact to sell its cement assets to Aditya Birla Group’s UltraTech Cement for Rs 16,500 crore.

The Jaypee Group had to once call off its deal to sell the cement plants in Madhya Pradesh to UltraTech because of this regulatory hurdle.

The other major beneficiary will be Lafarge, which has put its cement assets in India on the block following anti-trust concerns subsequent to its global merger with Swiss cement giant Holcim in April 2014. It also had to call of its proposed sale to Kolkata-based Birla Corp due the same regulatory hurdle. Lafarge’s assets, for which global PE and cement players as well domestic majors have shown interest, are worth around Rs 10,500 crore.

The MMDR amendment, which now needs ratification by the Parliament, will also allow cement and other companies that have captive plants to access raw material sources to sell parts of their business asset-wise, as opposed to selling the company in entirety through share transfer, which works out to be much more expensive and complicated.

“Transfer of captive mining leases, granted otherwise than through auction, would allow mergers and acquisitions of companies and facilitate ease of doing business for companies to improve profitability and decrease costs of the companies’ dependent on supply of mineral ore from captive leases,” a government statement said.

The transfer provisions will also facilitate banks and financial institutions to liquidate stressed assets where a company or its captive mining lease is mortgaged, it added.

The MMDR Act, passed by Parliament in March last year, only allowed transfer of mining leases in cases where the mine has been acquired through auction.

“The MMDR Act, 1957, as amended through the MMDR Amendment Act, 2015, restricted the scope of transferability of concessions granted through auction. It was restricting the mergers and acquisitions of companies and was impeding the ease of doing business for companies dependent on supply of mineral ore from captive leases,” the statement said.

Through the amendment now, the government wants to insert a clause that says: “Provided that where a mining lease has been granted otherwise than through auction and where minerals from such mining lease is being used for captive purpose, such mining lease will be permitted to be transferred subject to compliance with terms and conditions as prescribed by central government,” the ministry had earlier said in a statement.

Minefield

What was the problem
* The govt amended the MMDR Act in 2015
* As per it, in future all mines were to be auctioned
* However, existing captive mine holders could retain them till March 31, 2030
* Non-captive holders could keep them till March 31, 2020
* If a company sold a plant, the mine could not be transferred if it was not won in an auction
* JP group, which had signed an agreement to sell its cement plant, got stuck

What has the govt done
* It has decided to amend the Act to allow transfer of mines not won in auction
* The move will help stuck M&As like that of JP Group
* However, such companies will have to pay a transfer fee to the govt
* This will make the deals more expensive

What will be the transfer fee
* Mines ministry will work that out
* Principle will be to work out the fee based on auction of similar mines in the area

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