Debt-laden Jaiprakash Associates Ltd has withdrawn itself from some of its cement markets in north India as part of streamlining its operations even as lenders continue to prod the firm to shed assets and pay debt. The company has drastically cut its cement supply to markets in the north, said two Delhi-based cement dealers.A spokesperson for the parent Jaypee Group confirmed that the company has chosen to withdrawn from certain markets of Haryana and Delhi.
“The company continues to sell cement in markets of north India. However, as a strategy the company has increased its focus on high realization markets and has withdrawn from certain markets of Haryana and Delhi where due to low prices and high freights (long lead markets) the net realization was very low and operations unviable,” the spokesperson said in an email response.These moves are part of a wider reorganization within the group.
According to analyst estimates, Jaiprakash Associates operates a total capacity of 4.7 million tonnes in the northern region and 15.6 million in the central region. “Supply of Jaypee cement to this (central region) market continues to remain normal,” said a Bhopal-based cement dealer, part of the central India market.“Jaypee cement is almost out of the north India market due to various issues including non-payment of dues to truckers and unavailability of coal at the Himachal Pradesh cement plants, which sell cement to the north India markets,” said a cement analyst, who has done channel checks in these markets. The analyst did not wish to be identified. One of the Delhi-based cement dealer quoted above on condition of anonymity confirmed the firm’s payment issues with the trucking companies.
According to the company’s website, Jaiprakash Associates has a combined capacity of 4 million tonnes in Himachal Pradesh. These assets are part of the sale agreement signed with UltraTech Cement Ltd.
In its email response, the company said, “The plant in Himachal Pradesh is in operation and continues to produce cement so as to meet the requirements of customers of the company.” The company did not deny or confirm any payment-related issues with the truck operators.To be sure, most of the cement operations of the Jaypee Group will soon change hands. On 31 March, Jaiprakash Associates signed a definitive agreement with UltraTech Cement Ltd for its 21.2 million tonne cement assets spread across five states for Rs.15,900 crore.
After the completion of the deal, the Jaypee Group will be left with cement capacity of 10 million tonnes across Madhya Pradesh, Uttar Pradesh, Andhra Pradesh and Karnataka.
Apart from streamlining its cement operations, the group is also exiting ventures that don’t fit into its strategy anymore. On 12 April, Press Trust of India reported that the company has pulled out of the Rs.34,000-crore project to set up an electronic chip plant.
Relief from RBI
Asset sales along with reorganization efforts have yielded some relief for the group as the Reserve Bank of India (RBI) has allowed banks with exposure to the Jaypee Group to classify the loans as standard assets for the January-March quarter, three bankers with direct knowledge of the development said.
On Thursday, The Economic Times reported that the banking regulator had reduced the burden of provisioning on banks by removing some names from the list of stressed accounts, including Jaiprakash Associates.
“The group has made some additional efforts to ensure that repayment happens as per schedule. This allows us to give them some more time as a standard account,” said a senior official at a public sector bank that has exposure to at least two of the group’s companies. The official declined to be named.
Jaiprakash Associates and Jaypee Infratech were both set to be classified as non-performing assets (NPAs) during the quarter after the RBI’s stringent asset quality review (AQR) in December.
After the AQR, each bank was given a list of accounts to be classified as either weak or non-performing and additional provisions were to be made in either the third or fourth quarter results of the last financial year.
Most banks did not classify Jaypee Group firms as an NPA in the December quarter and instead pushed the company to sell assets and transfer its real estate holdings.
Apart from the sale of cement assets to UltraTech, group firm Jaypee Infratech Ltd has also provided additional pockets of land along its Yamuna Expressway to banks.
The company has also handed over the Jaypee Group headquarters in Noida to Axis Bank to reduce debt worth around Rs.700 crore. Lenders can later on sell these properties and recover the loan amounts as and when they find the right buyers.
The group has an estimated debt of around Rs.75,000 crore as of 31 March 2015, according to the October 2015 edition of Credit Suisse AG’s House of Debt report.
Nirmal Gangwal, managing director and founder a corporate restructuring advisory firm Brescon Corporate Advisors (P) Ltd, believes more efforts are needed. “I still believe the banks should have resolved the remaining assets before selling things in piecemeal. The banking system and management together should have worked out what debt is sustainable and what is not. Banks and the management need to reconcile and then move forward,” said Gangwal.
