LafargeHolcim to Sell India Unit to Nirma for $1.4 Billion

Updated on
  • Company confident of reaching CHF3.5 billion disposal goal
  • Indian cement market has suffered decrease in prices

LafargeHolcim Ltd. agreed to sell an Indian building-materials business to Nirma Ltd. for an enterprise value of about $1.4 billion as the world’s biggest cement company trims assets to help pay down debt and protect an investment-grade credit rating.

The unit operates three cement plants and two grinding stations with capacity to produce about 11 million metric tons per year, LafargeHolcim said in a statement Monday. Nirma is a closely-held conglomerate founded by Karsanbhai Patel, with more than $1.1 billion in sales in sectors spanning detergents, soda ash and packaging.

The transaction will take LafargeHolcim Chief Executive Officer Eric Olsen a step closer to a disposal target of 3.5 billion francs ($3.6 billion) by the end of this year. Amid disappointing results, Olsen has been forced to defend the merger that brought together the world’s two largest cement companies last year. Steep price declines in India had been among the factors weighing on earnings, and the CEO has been pushing through a cost-cutting program to defend margins there.

“With this deal, two thirds of the program has been secured and the remainder of the program is well on track,” Olsen said in the statement. “We are confident that we will meet our target by the end of this year.”

Shares of LafargeHolcim were up 3.4 percent to 42.18 francs as of 9:26 a.m. in Zurich. They had fallen about 16 percent so far this year, prior to today, giving the group a market value of 25 billion francs.

More to Follow

The Swiss company had signaled in May that it was “well advanced” with this year’s divestment program, with the Indian deal likely in the third quarter, and more to follow in 2017. Selling the cement, aggregates and ready-mix concrete assets were necessary to win the approval of Indian competition authorities, Baader analyst Patrick Appenzeller said in a note. Vontobel analyst Christian Arnold had expected the asset to fetch between 1.2 billion and 1.5 billion francs.

Nirma plans to finance the deal through a bond sale of about 40 billion rupees to 50 billion rupees, according to people familiar with the situation. Barclays, Credit Suisse and IDFC are assisting with the planned offering. The Indian conglomerate may also seek a minority partner to join it in the acquisition, for which it agreed to pay 82 billion rupees ($1.22 billion).

LafargeHolcim remains a major player in the market through its ACC and Ambuja Cements subsidiaries. As well as addressing a market overlap, the disposal also “seems to be necessary” to keep an investment-grade credit rating, he said. The cement maker is rated BBB by Standard & Poor’s, one notch above junk status.