Mumbai | Jan 26, 2016: Bankers involved in the sale of Lafarge SA’s India assets are simultaneously pursuing Plan A and Plan B to try and get clearance for the global merger between Holcim and Lafarge SA.
This approach has been necessitated by uncertainty over government policy.
Current rules prevent a transfer of mines attached to a cement unit at the time of sale. The government is looking to change this, but the lack of clarity on how quickly these changes will materialize has meant that the company, its bankers and bidders find themselves pursuing two deals simultaneously—one where Lafarge will sell about half its India capacity in east India to Birla Corp. Ltd and a second deal where the French firm will sell its entire capacity in India.
Work on both is going on, said three bankers directly involved in the deal. They spoke on condition of anonymity as the talks are confidential.
The deal with Birla Corp. is officially still on and in case the amendment to the (Development and Regulation) Act (MMDR Act) is passed, it will go through, said one of the three. Mint reported on 12 January that the government is considering amending the Mines and Minerals (Development and Regulation) (Amendment) Bill, 2016, and that the mines ministry has already put up the changes for review on its website. Still, given the glacial speed at which legislation is passed in India, talks for an alternative deal, where Lafarge exits its entire 11 million tonne capacity in India, have begun.
“Unofficially, the bidders who had earlier bid for the assets have circled back and are now looking at the entire cement portfolio. But Lafarge isn’t keen on exiting everything in India so it is hoping that the clearances come along. If not, the company has no other option left (but to sell it all),” the banker added.
On Friday, Sajjan Jindal-led JSW Cements Ltd confirmed interest in Lafarge’s cement assets. JSW Cements was one of the initial bidders in the deal that was eventually closed by Birla Corp. Apart from JSW Cement, private equity firms Blackstone Lp and Baring Private Equity Asia had also bid for Lafarge’s east India assets.
In August 2015, Lafarge agreed to sell its Eastern India cement assets, with a capacity of 5.15 million tonnes, to Birla Corp. for Rs.5,000 crore. The deal has time till the middle of 2016 to close, said the second banker.
“The deal with Birla is still on but there is a definitive timeline to it and we are hoping that the government will come up with a resolution before that,” this person added.
Birla Corp. did not respond to an e-mail seeking clarity on the status of the deal.
The government has started the process of making the changes needed to the MMDR Act to allow the transfer of captive mines to the new owner of a cement asset. But these changes have to be cleared by the cabinet and then Parliament.
“We have representations from industry bodies and individuals seeking an amendment to the MMDR Act. We are considering allowing transfer of captive mines,” said Balvinder Kumar, secretary, ministry of mines, in a phone interview. He declined to commit to a timeline over which the rules would be changed.
Meanwhile, Lafarge has already submitted a revised proposal to the Competition Commission of India (CCI), which involves the sale of its entire 11 million tonne capacity in India if the Birla Corp. deal cannot be executed, said the third banker. This revised proposal involves the sale of shares in Lafarge India Pvt. Ltd, which will not flout the existing MMDR rule. If CCI gives a nod to the revised plan, then Lafarge may go ahead and sell its entire capacity in India.
“The deal now hangs on what CCI says—whether a yes or a no,” said the third banker.
A spokesperson for LafargeHolcim refused to provide clarity on the status of the deal.
“We remain in dialogue with CCI and will communicate further in due course,” the spokesperson said in an email response.
According to an analyst familiar with the thinking at Lafarge, both options remain on the table.
“If the amendment happens first, the company will sell its eastern India assets and hold the remaining assets. If the CCI order allowing full asset sale comes in earlier, Lafarge may make a full exit,” said this person who asked not to be identified.
In April 2015, Lafarge, which is now part of the merged entity LafargeHolcim, was directed to sell off its cement assets in eastern India to comply with competition rules in India. CCI’s approval for the global merger of French cement maker Lafarge SA and Swiss cement manufacturer Holcim was tied to this sale.
However, the plan ran afoul of the MMDR Act, bringing the process to a standstill.
The Lafarge deal is not the only one affected by the MMDR Act. Other agreements, including Jaiprakash Associates Ltd’s deal to sell its Madhya Pradesh Cement Assets to UltraTech Cement Ltd, are also awaiting closure.
“If there is a delay in policy clarity, we will see deals held up. Buyers want to see the fine print, but there is no fine print to look at. Even global firms who have very ambitious plans to add up capacity in the country are holding back because they are not sure which way the policy will go,” said Kalpana Jain, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.
(Source: http://www.livemint.com/)