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Changes in Mines Act will bring better valuation to cement, steel sector assets

 

New Delhi | May 03, 2016: Mergers and acquisitions worth over ₹20,000 crore in the cement sector, which have been delayed for months, will now be able to move ahead with the amendment to the Mines and Minerals (Development and Regulation) Act being cleared by the Rajya Sabha on Monday.

 

The amendment, which allows transfer of leases for captive mines in cases of mergers and acquisitions, would also enable steel firms such as Jindal Steel and Power Ltd, Essar Steel and others get better valuations for their assets as they can now include the captive mining leases as part of any deals they decide to enter into in future.

 

The Rajya Sabha nod could not be obtained during the Budget session as the Lok Sabha cleared it on March 16, the last day of the session before it was prorogued.

 

The Mines Ministry will now notify the changes in the Mineral Concession Rules. It is also set to fix the fees required for the transfer of captive mining leases. “The transfers of captive lease were subject to realisation of an appropriate amount. We will soon finalise the modalities,” a senior Mines Ministry official said

 

Ministry officials further clarified that the provision for transfer of mining leases in cases of mergers and acquisitions is only for captive mining leases and it is not considering a move to allow the same for commercial mines.

 

“The amendment will help all financially stressed companies with captive mining leases to get better valuations of their assets when they go in for mergers and acquisitions. This would help keep the mines operational and not go into limbo,” a senior government official told BusinessLine.

 

The changes were required because after the enactment of the amended MMDR Act on January 12, 2015, all mining leases in the country could only be issued after a competitive bidding process. Under the amended Act, even in case of mergers and acquisitions, transfer of mineral leases was only allowed for those that have been auctioned.

 

This had led to several M&As in the cement sector being put on hold. Even where the two parties had reached an agreement on the valuations, the deals could not go through as the captive mines linked to cement manufacturing units could not be transferred.

 

The lack of such a provision in MMDR Act amended in January 12, 2015, also led to LafargeHolcim to call off a ₹5,000 crore deal to sell its 5.15 million tonnes cement assets in east India to Birla Corp Ltd.

 

Transactions like UltraTech Cement’s ₹15,900-deal to acquire 21.2 million tonnes of cement manufacturing assets of Jaiprakash Associates will be now able to go through. The UltraTech-Jaiprakash Associates deal has already been delayed by several months.

 

Streamline consolidation
“India Ratings expects the amendment to the Act to streamline the consolidation process in the cement industry...and clear the way for large merger and acquisition transactions that have been stuck due to the restriction on the transfer of mines as per the amendment of mines and mineral act January 2015. This could also trigger acquisitions in the steel sector, primarily by medium and small players since the larger players are well placed with captive mines,” Fitch Group's credit rating agency India Ratings & Research said in a statement on Tuesday.

 

 

(Source: http://www.thehindubusinessline.com/)