The Union cabinet on Thursday cleared a proposal to amend the mines and minerals law to allow the transfer of captive mines granted through non-auction routes, a move likely to spur mergers and acquisitions (M&As) in the cement industry.
When the Mines and Minerals (Development and Regulation) Act (MMDR Act) wins parliamentary passage, it will clear the decks for a Rs.16,500 crore deal in which UltraTech Cement Ltd is seeking to acquire Jaiprakash Associates Ltd’s 22 million tonne cement capacity.
“The cabinet has approved the proposal allowing transfer of captive mines across sectors. We have received various representations from banks and associations saying the amendment will facilitate a number of mergers and acquisitions in the cement sector,” said Balvinder Kumar, the top civil servant in the ministry of mines, in a telephone interview.
The new MMDR Act, passed in January 2015, did not allow the transfer of allotted mining rights by one company or subsidiary to another. All the limestone mines held by cement companies until the January amendment had been allotted by the government.
The new MMDR Act impeded two large cement industry deals in the past year.
On 2 February, Birla Corp. Ltd said a deal to buy 5.15 million tonnes of cement assets from LafargeHolcim in east India had been called off. On 4 February, LafargeHolcim said the deal had been called off due to the MMDR restrictions on transfer of mining rights.
LafargeHolcim is now looking to sell all of Lafarge India Pvt. Ltd’s 11 million tonnes of cement assets in India in order to comply with both the current MMDR rules and the country’s anti-trust regulations, following the global merger between Holcim of Switzerland and Lafarge of France.
Sale of the entire cement portfolio will not require any transfer of mining rights.
UltraTech’s December 2015 deal with Jaiprakash Associates for its two cement assets in Madhya Pradesh for Rs.5,400 crore was also called off on 26 February due to the MMDR regulations.
The deal was later folded into a larger deal where UltraTech is now looking to buy Jaiprakash Associates’ entire 22 million tonne capacity.
The amendment, which the cabinet cleared on Thursday, if approved by Parliament, would help remove regulatory hurdles to the UltraTech-Jaiprakash transaction, which is crucial for the latter’s effort to reduce debt that amounted toRs.75,000 crore at the end of the last financial year, according to the 21 October edition of Credit Suisse’s House of Debt report.
Yet, some clarifications may be needed on the transfer of mines.
“There are some minor explanations required; the draft spoke about requiring central government approval for such transfers, this needs to be further clarified,” said an executive from a cement company who did not wish to be identified. This company has been on the lookout for cement assets.
According to the draft of the proposed amendment put up for comments by the mines ministry on 11 January, the transfer would be subject to “compliance with such terms and conditions as may be prescribed by the central government in this regard”.
Not just the UltraTech-Jaiprakash deal, the amendment would bring clarity to other transactions and also facilitate more acquisitions in the sector.
“Overall, an amendment will bring clarity to both the Reliance cement deal which has been announced and also the Lafarge India 11 million tonne sale, which is under process. So far, it was an interpretation that a stake purchase can be executed. In addition, future acquisitions will be easier,” the cement company official cited above added.
On 5 February, Reliance Infrastructure Ltd announced an agreement to sell its cement division to Birla Corp. for Rs.4,800 crore. Cement will be one of the early beneficiaries of the amendment, but M&A experts say it will also help other mining-related sectors.
“It will have quite a far-reaching impact. You will see a lot of activity in cement. When the metals and power sector recover, they will also gain from this. It will help in the steel sector’s consolidation,” said Kalpana Jain, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd.