India’s F1 Builder Up 27% on Cement Unit’s Higher Sale Price

  • Jaiprakash gains after valuation rises to 161.9 billion rupees
  • Deal with Ultratech expected to close within 12 months

Jaiprakash Associates Ltd. rose by the most on record after the builder of India’s only Formula One race track announced a higher valuation for the cement business it’s selling to Ultratech Cement Ltd.

Shares of Jaiprakash advanced as much as 37 percent, before closing at 11.7 rupees, a gain of 27 percent, in Mumbai. Ultratech, the cement maker controlled by billionaire Kumar Mangalam Birla, fell 1 percent, more than double the decline in the benchmark S&P BSE Sensex.

A higher sale price will help Jaiprakash reduce borrowings that more than doubled to 753 billion rupees ($11.2 billion) in the five years through March 2015, before falling last fiscal, according to data compiled by Bloomberg. The deal will help transfer about 120 billion rupees of debt to Ultratech, according to a BloombergQuint report.

“A deal at an higher price puts to rest speculation of the company defaulting,” Kishor Ostwal, managing director at CNI Research Ltd., said by phone. “The sustenance of the rally will depend on the actual quantum of debt reduction.”

Jaiprakash defaulted on debt repayments to banks and financial institutions as well as on other dues last financial year, with delays of as much as six months, though the payments were subsequently made, according to the auditor’s report.

Under a new agreement filed to exchanges Monday, Jaiprakash will sell 21.2 million tons per annum of cement capacity across five Indian states to Ultratech for an enterprise value of 161.9 billion rupees. A March filing by Ultratech had valued the deal at 159 billion rupees. The Jaiprakash conglomerate will retain 10.6 million tons of capacity after the asset sale.

Lenders to the company had invoked a so-called Strategic Debt Restructuring plan, allowing them to convert debt into equity, the builder said July 4. Jaiprakash will now enter into fresh negotiations with its lenders to restructure debt, Chief Financial Officer Rahul Kumar said in an interview with BloombergQuint on Tuesday. He did not expect the company to sell any more assets, he said.

The acquisition, expected to close within 12 months, will raise Ultratech’s cement manufacturing capacity to 91.1 million tons per annum, including its overseas operations, based on the filing. That brings the company closer to its target of 100 million tons in a decade, a vision its billionaire-owner had outlined in November 2014.

India is the second-largest cement producer in the world after China, with the building-materials market dominated by Ultratech, Bloomberg Intelligence analyst Sonia Baldeira wrote in a March report. The nation’s cement output rose 93.2 percent in the decade ended January 2015, with its infrastructure push likely to drive future demand, she wrote.

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