The battle for acquiring Braj Binani's debt-loaded cement business intensifies after doyens of Indian industry tossed their hat into the ring on the final day of the bid submission on Monday. When JSW Cement, headed by Sajjan Jindal's son Parth, submitted its bid jointly with a private equity player, D-Mart promoter, Radhakishan Damani, joined hands with stock investor, Rakesh Jhunjhunwala, to try their luck. Dalmias of Dalmia Bharat bid jointly with Ajay Piramal. Others reported to be in race are Aditya Birla Group's UltraTech, German cement giant Heidelberg and Ramco Cements (jointly with PE firm True North).
The 11.25 million tonne (MT) Binani Cement, which is facing insolvency proceedings in the National Company Law Tribunal (NCLT), had an outstanding debt of Rs 3,608 crore at the end of the last financial year. During the last fiscal year, the company's cement production stood at 3.55 MT compared to 4.33 MT in the year before. It reported a net loss of Rs 347.60 crore on revenues of Rs 1534.62 crore. The company --- which manufactures and markets 'Ordinary Portland Cement' (OPC) and 'Pozzolana Portland Cement' (PPC) under the 'Binani' brand--- is Braj Binani group's flagship subsidiary with operations in Rajasthan, Dubai and China. It has a capacity of 6.25 MT in its plants in Rajasthan and its markets spread across northern and western India. While moving slow in India, Binani aggressively pursued his global expansion plan. He created grinding capacity of 2 MT in Dubai and in China, he built 3MT clinkerisation capacity.
The lenders filed claim for Rs 3,884 crore from the company during the insolvency process. It includes the loans taken over by Edelweiss Asset Reconstruction Company from the banks and dues to State Bank of India, Canara Bank and Bank of Baroda. The cement maker also faces a claim of Rs 2,429 crore-worth corporate guarantees from IDBI Bank and SBI, which is currently in dispute between the resolution professional and the lenders.
The buyers and price
There was expectation that lenders would take a haircut of 50-60 per cent in their loan claims and it led to the rush of buyers for Binani Cement. An executive with one of the bidders says that the assets are value for money. "They have markets and a strong brand. The production facilities are relatively new," he says. "For building capacities of this size in the middle of a strong market will be tough in today's time. The asset will turn to be lucrative when demand picks up," he adds.
Industry experts point out that the cost of the assets would be a little less than Rs 4,000 crore. For comparison, Nirma bought Lafarge's 11MT assets for Rs 9,400 crore.
In one of the recent bankruptcy court driven sales, Dalmia Bharat emerged as the highest bidder for Murli Industries, a Nagpur-based cement manufacturer, in a deal that will involve huge write down of equity and Dalmia infusing close to Rs 400 crore to revive the company.
Parth Jindal, managing director of JSW Cement recently said Binani Cement was a big asset with 11mt capacity and Rs 3,800 crore debt, which could go up to Rs 4,500 crore with contingent liabilities. JSW Cement, which has a cement making capacity of 11.6 MT in India, has access to Rs 6,000-7,000 crore worth of funds for the deal, he added.
Fall of Binani
In 1997, the company commenced operations in Rajasthan after setting up a 1.65 MT integrated cement facility and a 25 mega watt (MW) captive power plant. As soon as they commissioned the plant, the economy went bust. The investment of Rs 400 crore and the high interest payments put the company in trouble. After eight years, the company raised capacity to 2.25 MT with the rise in demand. In 2007, the capacity was doubled to meet escalating demand. In 2008, a split grinding unit at Neem-Ka-Thana, Rajasthan, was commissioned.
The aggressive expansion of Binani got halted after the economy slowed down post-2012, especially in India. The restructuring of the term loans was necessitated on account of lackluster demand, decline in realizations and increase in costs. In addition, the company had failed in paying the tax dues to Rajasthan and the production grounded to a halt in Rajasthan. In the meantime, lenders also failed to take a joint decision for a Corrective Action Plan (CAP) for the recovery of the company.
Bank of Baroda, in July last year, had filed a petition against Binani Cement with the NCLT's Kolkata bench, seeking to recover Rs 97 crore in an outstanding loan. According to the holding firm's auditor, MZSK & Associates, Binani Cement had assets worth Rs 5,074.83 crore at the end of March 2017.