Reliance Infra sells cement arm to Birla Corp at 140% equity premium

MUMBAI: Reliance Infrastructure has signed a deal to sell its cement arm to Birla CorporationBSE 3.58 % at an equity premium of 140% in a deal that pegs the enterprise value at Rs 4,800 crore, Chief Executive Officer Lalit Jalan told ET.

Anil Ambani wants Reliance Group’s flagship infrastructure company, Reliance Infrastructure, to turn debt-free on standalone basis by 2017 and the company’s management is actively pursuing divestment goals to achieve his target. The group is in the process of major restructuring where it is selling off businesses like cement and roads, divesting in other businesses like the Mumbai electricity distribution arm in an attempt to reduce debt and focus more on its new defence business.

“This deal was delayed a little due to formalities but it will help us significantly to reduce debt by Rs 2,400 crore. We hope to close the other deals before April 30,” Chief Financial Officer Lalit Jalan told ET.

Jalan said that the deals for sale of roads business and the divestment in the Mumbai electricity business will be closed by March.

Firms like Blackstone, Birla Corp and Baring Private Equity Asia were in the final race to acquire the cement business of Reliance Infrastructure. Reliance Infrastructure had shortlisted 15 interested parties for its cement business which has an annual output of 5.6 million tonnes.

“We had few offers but going ahead with Birla Corp made sense given the value they offered and our relationship with them. We had a preference for Indian strategic investor,” Jalan said.

Reliance Infrastructure’s cement business had debt of Rs 2,400 crore on its book which will get transferred to Birla Corp. The parent company had invested Rs 1,000 crore in the equity for cement business for which it will receive Rs 2,400 crore, translating into a 140% premium. This puts the enterprise value at Rs 4,800 crore, Jalan elaborated.

Reliance Infrastructure, which is into power distribution and infrastructure development businesses, set up subsidiary Reliance Cement to enter cement manufacturing to use the fly ash generated from its power unit to manufacture the commodity.