With the Union Cabinet clearing a proposal to amend the MMDR Act to allow transfer of captive mining leases not granted through auction, stuck mergers and acquisitions in the mineral space, especially cement, will sail through, enabling banks and financial institutions to liquidate stressed assets where a company or its captive mining lease is mortgaged.
The immediate beneficiary will be the debt-laden Jaiprakash Associates, which has entered into a binding agreement 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 assets, for which global PE and cement players as well domestic majors have shown interest, is worth around Rs 10,000 crore.
The MMDR amendment, which now needs ratification by the Parliament, will also allow cement companies to sell parts of their business asset wise as opposed to share transfers at the company level, which is preferred mode of transaction in M&A deals currently. The recent sale of cement subsidiary of Reliance Infra to Birla Corp for Rs 4,800 crore is one such example, which did not invoke the provisions of MMDR Act. The structure though effective was a limiting factor in very large deals, where a single buyer may not be available to buy the entire assets.
“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, or Minerals (Development and Regulation) 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.