Displaying items by tag: Binani Industries

India: Braj Binani, the owner of Binani Industries and the former owner of Binani Cement, has been prevented from travelling to the UK by Indian immigration officials. Punjab National Bank (PNB) issued a so-called lookout notice to prevent debt defaulters leaving the country, according to DNA Money. The notice was issued following Binani’s failure to attend a Kolkata Bench of the National Company Law Tribunal (NCLT) on 20 January 2019.

Binani Industries had stood guarantor for a US$42m loan taken out by a subsidiary but then left unpaid. Binani Cement was acquired by UltraTech Cement in late 2018 following a legal battle with Dalmia Bharat.

UltraTech Cement’s deal to buy the cement business of Century Textiles & Industries could see it become the world’s third largest cement producer by production capacity outside of China.

It announced this week that it had entered into an acquisition agreement to buy the cement subsidiary of BK Birla Group for US$1.26bn. If the deal completes then it will gain three integrated plants in Madhya Pradesh, Chhattisgarh and Maharashtra respectively with a combined production capacity of 11.4Mt/yr and a 1Mt/yr grinding plant in West Bengal. At this point UltraTech Cement will increase its production capacity to 106Mt/yr seeing it become the third largest cement producer in the world in Global Cement’s Top 100 Report.

This latest deal is subject to the usual regulatory approval from competition bodies and the like. Bustling past this step seems far from clear at this stage given that UltraTech Cement owns cement plants already in each of the four states the proposed purchases are in. It has described the purchase as giving it, …”the opportunity for further strengthening its presence in the highly fragmented, competitive and fast growing East and Central markets and extending its footprint in the Western and Southern markets.” Synergy savings from procurement and logistics are expected to follow with further benefits to be gained from the company’s distribution network. Local and national competitors may not see it the same way and the fallout from a price war could be damaging for smaller producers.

As covered previously, UltraTech Cement seems hell bent on winning its on-going fight against Dalmia Bharat to buy Binani Cement. Rightly or wrongly UltraTech Cement tried to muscle its way into buying Binani by making a bid directly to its owners after it lost an auction for it. Legal wrangling has followed as the insolvency process for Binani Cement has clashed against the auction process of the administrator. At the time of writing it is still far from clear which company will win.

Comparing the prices of the two latest acquisition targets by UltraTech Cement may offer some insight of its motivations. The Binani Cement assets roll in at just over US$125/t of production capacity. Although, as noted below, some of this is located outside of India. The Century Textiles & Industries assets are being purchased for a little over US$100/t. This is interesting as it is lower that the Binani cost, although the close links between BK Birla Group and UltraTech Cement’s owner Aditya Birla may help to explain this.

UltraTech Cement’s milestone as it surpasses the 100Mt/yr capacity level will mark a continuing change in the world’s cement industry as it moves away from Europe and North America to developing economies. As ever the classification is a bit of a fudge given that Global Cement’s top producers list excludes Chinese producers. Partly this arises from the difficulty obtaining reliable data on the Chinese industry. Partly this comes from top producer’s list looking at multinational companies over (extremely) large national ones. Due to this UltraTech Cement remains a regional player. Or it will at least until it (or if it) manages to buy Binani Cement. Some of the assets included in that sale include plants in both the UAE and China. At this point UltraTech Cement’s claim to be the third biggest cement producer in the world will be secure.

Persistence has paid off for UltraTech Cement this week. Although the deal is not complete, all the signs are pointing towards India’s largest cement producer buying Binani Cement despite losing an auction for it last month. Here’s a recap of what has happened so far.

In July 2017 the National Company Law Tribunal (NCLT) in Kolkata, a semi-judicial body that rules on issues relating to companies, started insolvency proceedings for Binani Cement. It followed a plea by one of the cement company’s creditors, the Bank of Baroda, that had an outstanding claim of around US$15m. The Kolkata bench of the NCLT rejected Binani Cement’s argument that the debt was tiny compared to the assets of its parent company Binani Industries of US$2.15bn. It then appointed an administrator, or resolution professional, called Vijaykumar Iyer, a partner at Deloitte Touche Tohmatsu India. More on him later on.

The subsequent auction of Binani Cement raised lots of interest both internationally and locally due to its production base. The company operates a 4.9Mt/yr plant at Binanigram in Rajasthan with two kilns and four mills. It also runs a 1.4Mt/yr cement grinding plant at Sirohi in the same state. Unusually though for an Indian producer it also runs a 2Mt/yr grinding plant at Jebel Ali, Dubai in the UAE and a 0.5Mt/yr integrated plant, Shandong Cement, in China.

Its products domestically in India include 43 and 53 grades Ordinary Portland Cement and Portland Pozzolana Cement, with the Bollywood film star Amitabh Bachchan as its brand ambassador. On that last point the Indian Supreme Court chastised Binani Cement in 2014 for not paying sales tax in Rajasthan whilst being able to hire Bachchan! However, given the ferocity of the struggle to buy Binani Cement maybe all that marketing of the brand paid off, giving the producer a much higher profile than it might otherwise have had.

Anyway, lots of companies showed interest in Binani Cement in the first round of bidding in late 2017. CRH, LafargeHolcim, HeidelbergCement, India Cement, Orient Cement, Ramco Cement, Shree Cement, UltraTech Cement and Piramal Group were all linked to the auction. Eventually UltraTech Cement, JSW Cement, Ramco Cement, HeidelbergCement India, Dalmia Bharat and a pair of Indian investors all submitted bids and JSW Cement emerged as the winner with a bid of US$919m. However the emergence of an additional liability of around US$250m scuppered that auction when it turned out that Binani Cement had offered a corporate guarantee for the acquisition of a fibreglass asset in Europe known as 3B in 2012 by Binani Industries. By February 2018 the next auction was in progress and this time Dalmia Bharat Cement and UltraTech Cement led the race. Dalmia Bharat won the second auction with a bid of around US$1.03bn made in a consortium with Bain Capital’s India Resurgent Fund and Piramal Enterprises.

At this point the situation might have conceivably slowed down. Instead, UltraTech Cement kept on fighting and queried the entire bidding process. It then made a direct offer of US$1.11bn to Binani Cement in the form of a so-called ‘comfort letter’ that Binani Industries used to stop the insolvency process. At the same time it received approval from the Competition Commission of India in its bid for Binani Cement, the previous absence of which was one of the reasons its bid against Dalmia Bharat was rejected.

Indian company law now faced a dilemma over how a bankruptcy works given that the NCLT was meant to be in charge. A way out was found though when the NCLT in Kolkata and the National Company Law Appellate Tribunal both allowed the bidders to settle the dispute ‘amicably.’ To add further confusion the administrator Vijaykumar Iyer also alleged right in the middle of the final tussle between Dalmia Bharat and UltraTech Cement that fraudulent transactions had been made by Binani Cement! Whether this has any further implications remains to be seen.

At this stage nobody is likely to declare UltraTech Cement the winner of Binani Cement until it actually picks up the keys to the cement plants. Perhaps not even then in case of any lingering legal issues! UltraTech Cement clearly views Rajasthan as a growth area given the tenacity with which it has gone after Binani Cement. It operates two integrated plants in the state and is building two more of its own. After its long journey in buying plants from Jaiprakash Associates in 2017, UltraTech Cement is starting to look like the cement producer that simply won’t take no for an answer.