Europe / Middle East / Africa
CRH enters fray to buy Indian cement plants
Jul, 19 2012
(NEW DELHI, India) -- CRH Plc, the $13.7-billion Irish building materials group, has entered the fray to buy Jaiprakash Associates' cement plants in Gujarat and Andhra Pradesh, after the Indian company's discussions with the AV Birla Group got stuck due to differences over valuation and other issues.
The deal, if it materialises, is expected to fetch Rs 8,000-9,000 crore for Jaiprakash Associates and will help the company reduce its total consolidated debt of about Rs 45,000 crore.
"The discussions between the two companies are in an advanced stage, but nothing has been finalised. Both sides are expected to meet in the last week of this month to give a final shape to the transaction. But it may go either way," said a person familiar with the development.
Replying to an emailed questionnaire, the CRH spokesperson said it doesn't comment on market rumour and speculation. The Jaiprakash Associates spokesperson didn't respond to queries.
Jaiprakash Associates, a diversified Delhi-based conglomerate with interests in cement, power, infrastructure, real estate, construction and hospitality, had spun off its cement units in Gujarat and Andhra Pradesh into a separate company last year. Jaypee Cement Corp, as the new company is called, runs a plant each in Sewagram, Kutch, and Wanakbori, Gujarat, with a total capacity of 4.8 million tonnes, as well as a 5-million-tonne unit in Andhra Pradesh's Krishna district.
Jaiprakash Associates has a total capacity of around 23 million tonnes, making it the third-largest player in India after Holcim and AV Birla Group-owned UltraTech. If it sells the Gujarat and Andhra Pradesh units, its total capacity will fall to 13 million tonnes. But the company is currently undertaking an expansion programme, and even if Jaypee Cement Corp is sold, its capacity should increase to around 26 million tonnes by March 2013.
Unlike the AV Birla Group and other suitors who were interested only in the Gujarat units, CRH is keen to acquire Jaypee Cement Corp lock, stock and barrel, since it has a strong presence in Andhra Pradesh, said the person familiar with the development. In 2008, CRH had entered India by acquiring a 50% stake in Hyderabad-based cement producer My Home Industries. The company currently has an installed capacity of 4.2 million tonnes.
CRH keen to expand in India
"CRH wants to expand operations in India, and in case it acquires Jaypee Cement Corp, the capacity under its control will increase to nearly 14 million tonnes," said the person quoted above.
Jaypee Cement Corp's units have enough captive limestone reserves to allow capacity to be ramped up by an additional 10 million tonnes with marginal incremental investment. Dublin-headquartered CRH has identified China and India as potential growth markets. "With strong population growth in both countries, GDP growth of 7-9% per annum and progressive urbanisation, the development potential was clear and CRH focused on these two countries as the primary targets for entry into Asia," said the company's website.
Another person familiar with the situation said UltraTech had signed an exclusivity agreement with Jaiprakash Associates in June, but the agreement lapsed as the two sides had differences over pricing and some other issues. One of the key issues was that UltraTech was interested only in the Gujarat units and not the Andhra Pradesh operations.
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