LafargeHolcim Ltd, which is selling Lafarge’s India assets to meet a regulatory requirement, has shortlisted at least six groups, either individually or in a consortium, and will now invite binding offers from them, two people familiar with the matter said.
The companies shortlisted include Piramal Group, Goldman Sachs Group Inc., JSW Energy Ltd, CVC Capital Partners, Irish cement maker CRH Plc., Blackstone Group, Canada Pension Plan Investment Board (CPPIB), Ramco Group and Carlyle Group, said one of the two people cited above who has direct knowledge of the matter.
“The non-binding bids were submitted individually but it was understood that some of those who are selected will form a consortium and submit their final bids in next three weeks’ time,” said the second person mentioned above.
Blackstone-CPPIB, JSW-CVC, Ramco-Carlyle and Piramal-Goldman may bid as partners while CRH may bid alone, said this person.
Lafarge is selling its entire 11 million tonne capacity to meet a Competition Commission of India merger condition. Lafarge’s India assets are likely to be valued at about Rs.10,000 crore, according to a 9 May Mint report, and bidders may be willing to pay a premium since this is probably the last big block of cement assets available in India for now.
The cement sector has seen a wave of consolidation over the past year as weaker companies sold assets to pare debt. “The Lafarge capacities are a large block of cement assets up for sale and it is unlikely that there would be any of this size which would be available on sale any time soon,” said Nitin Bhasin, head of research at Ambit Capital Pvt. Ltd.
Bhasin, however, added that profitability in some of the markets where Lafarge India is present has come under pressure lately.
“The demand in the eastern market is 12-13 mtpa (million tonnes per annum) more than the supply and given the capacity addition underway in the eastern market and adjoining markets, one cannot ignore that profitability could be pressed going forward,” said Bhasin.
LafargeHolcim declined to comment.
An emailed query sent to JSW Cement and Ramco Cement on Wednesday remained unanswered. CRH, CVC Capital, Blackstone Group, Carlyle and Piramal Group declined to comment.
Lafarge India’s attempts to sell the assets to meet competition norms emerging from the combination of France’s Lafarge SA and the Swiss company Holcim Ltd, has faced several challenges over the past one year.
Lafarge entered into a deal with Birla Corp. in August 2015 for its east India assets. The transaction was called off on 2 February because of regulatory hurdles over the transfer of related mine leases. This prompted LafargeHolcim to put its entire India capacity on sale.
However, on 14 April, a day after the non binding bids were submitted, the Competition Appellate Tribunal (Compat) stayed the sale of 11 million tonnes of cement capacity held by Lafarge India Pvt. Ltd, following an appeal by cement maker Dalmia Cement (Bharat) Ltd. Dalmia withdrew its appeal on 9 May, allowing the bidding process to restart.
The cement sector has seen some large deals go through in the past year.
On 31 March, Jaiprakash Associates Ltd sold 21.2 million tonnes in cement capacity to UltraTech Cement Ltd for Rs.15,900 crore. On 5 February, Birla Corp. Ltd agreed to buy 5.5 million tonnes in cement assets from Reliance Infrastructure Ltd for Rs.4,800 crore.
According to a 17 March report by JPMorgan, the exit of distressed players and the ensuing consolidation will lead to better pricing power in the sector. “The industry is witnessing significant market consolidation in calendar year 2016 with the exit of three major cement players viz. JPA (Jaiprakash Associates), Reliance, Lafarge—10% of industry capacity,” noted the report.
“M&A activity in the current round has been driven by large domestic players in contrast to foreign players pre-2010. Asset divestments have seen strong buyer interest and transaction valuations have not been cheap despite current low returns,” it added.
Source: Livemint
