Binani Cement's acquisition can make UltraTech market leader in north India

Acquisition of Binani Cement, subject to approval, is poised to make UltraTech Cement the market leader in the north Indian cement market overtaking the current market leader Shree Cement.
According to sector analysts, Shree Cement’s current market share in the country’s northern zone is around 22 per cent while UltraTech’s share is 19 per cent. In case of a successful takeover, UltraTech’s market share will climb higher to touch around 26 per cent. In turn, it will provide the Aditya Birla Group company greater power on pricing, which in turn, is expected to boost its margins.
“It makes sense for UltraTech to pursue its aggressiveness with Binani Cement as a successful takeover will make them the market leader and help in further consolidation in the cement space”, R R Ravi, sector analyst with Centrum Broking, said.
Nevertheless, in Rajasthan, Shree Cement will continue to lead the market with 18 million tonnes per annum (mtpa) capacity while a successful takeover will boost UltraTech’s capacity to just over 14 mtpa. The latter’s total installed capacity in the northern region is 17.6 mtpa.
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Furthermore, according to an analyst with Motilal Oswal, the takeover will also provide UltraTech the necessary means to double the current 6.25 mtpa of Binani Cement. This company, which is currently undergoing insolvency proceedings in the Kolkata bench of NCLT, has “considerable limestone reserves”, which can help the acquirer scale up operations considerably.
“Given the huge limestone reserves of Binani Cement, which will be transferred to the successful acquirer, there is a good chance of doubling the installed capacity”, an analyst with Motilal Oswal said.
This limestone reserve can also be routed to feed UltraTech’s current plants in Rajasthan. However, it has limestone reserves that can feed its existing capacity for over 35 years.

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Sector analysts estimate that the acquisition cost of Binani’s assets, leaving aside its China and UAE plants, will be around $110-130 a tonne.
However, in case UltraTech is eventually able to acquire Binani Cement, its margins from the return on capial, is likely to hover around six per cent for the Binani plants as against its predominant margins of 10-11 per cent. On the contrary, Shree Cement, backed by greenfield and brownfield projects is estimated to register a 20 per cent margin on return on capital.
“However, it will be on a short-term and eventually margins on the capital employed may rise. Even then, it makes sense to acquire Binani Cement as it will make them the market leader”, the analyst with Motilal Oswal said.
ALSO READ: Mapping insolvency: UltraTech may shell out over Rs 79 bn for Binani Cement
UltraTech, however, did not respond to questions put forward.
According to analysts who track the cement sector, Binani Cement acquisition is strategic both for UltraTech as well as Dalmia Bharat.
In an earlier instance, while talking to Business Standard, Dalmia Bharat CEO Mahendra Singhi said that acquisition of Binani plants will give it exposure to the entire north Indian market, including Gujarat, and will help the company emerge as a pan-India cement manufacturer.
ALSO READ: Insolvency: UltraTech Cement to bear cost of Binani's legal proceedings
Currently, its consolidated production capacity stands at 27 mtpa most of which is centred around east and south India. In contrast, UltraTech’s consolidated capacity currently stands at 92.5 mtpa that will increase to 105.9 mtpa once it completes the takeover of 13.4 mtpa cement business of Century Textiles and Industries.
Binani Cement has two kilns and four grinding mills at Binanigram, Pindwara, Sirohi and Sikar in Rajasthan.
Key points
UltraTech currently has 19 per cent market share with Shree Cement commanding 22 per cent of the market
Binani Cement acquisition will take UltraTech’s market share to 26 per cent and make it the market leader
UltraTech has scope to double Binani Cement plant's capacity backed by huge limestone reserves

Insolvency resolution: Binani CoC votes in favour of UltraTech's proposal

The Committee of Creditors (CoC) of Binani Cement on Monday voted in favour of the Rs 79.60 billion offer from UltraTech Cement for the takeover of the aforesaid company currently undergoing insolvency proceedings.
Sources attending the meeting said that since UltraTech is taking care of all the legitimate claims of all the stakeholders, its proposal received 100 per cent consent.

As the next step, the CoC will submit its plan to the resolution professional and in turn, the offer will be submitted to the NCLT.
"No Letter of Intent needs to be issued and hence the proposal can be submitted directly to NCLT", a lender said.
The lenders met in Mumbai and voting in person took place. One of the leading lenders had earlier asked the CoC to be physically present at the venue for the voting process.
Sources in the CoC, who participated in the voting said that it overrides its previous decision when it selected the offer from the Dalmia Bharat led consortium as the successful bidder. Hence, as per this decision, UltraTech becomes the H1 bidder thereby replacing Rajputana Properties - the Dalmia Bharat led consortium.
In the previous instance, after the CoC had approved Dalmia Bharat's proposal and placed the proposal to the Kolkata bench of NCLT, UltraTech and several other stakeholders contested it. In turn, the Tribunal had ordered the CoC to consider the Aditya Birla Group company's proposal and select a resolution plan for submission latest by June 24.
Sources in Dalmia Bharat said that in case the NCLT approves the offer from UltraTech, it will contest the decision in the Appellate Tribunal and may also move the Supreme Court.
On the other hand, on the same day, the Supreme Court has admitted Dalmia Bharat led consortium's allegation that UltraTech is ineligible to bid under Section 29(A) of the IBC. The hearing on the matter is slated early next week.
Lenders who passed UltraTech's plan and had claimed it to be eligible, thereby refuting Dalmia Bharat's claim said that despite the CoC reaching a decision on the bidder, they will abide by the decision of the Supreme Court.
Lenders opined that the Tribunal had directed while passing the order, that its actions need to be in accordance with the spirit of the IBC. The Tribunal had also held that the objective of the IBC is maximisation of value.
"It is clear from the order that one who is offering the highest amount will be selected as the H1 bidder. We had asked Dalmia Bharat to match the offer from UltraTech but they didn't within the stipulated time", a lender said.
Even as the Dalmia Bharat led consortium has moved the Supreme Court alleging UltraTech Cement to be disqualified to bid for the stressed assets of Binani Cement, the Rs 79.60 billion proposal from UltraTech will be put to vote on Monday by the Committee of Creditors (CoC) of Binani Cement.
Asked about the voting on Monday, one of the leading lenders said, “There is a hearing on this case on June 4 and by then we feel that a successful bidder had to be selected”.

Dalmia Bharat alleges UltraTech legally ineligible to bid for Binani Cement

On the eve of the crucial meeting of Binani Cement’s Committee of Creditors (CoC) on Thursday, Dalmia Bharat Cement has written to the lenders and the company’s resolution professional alleging that UltraTech Cement is disqualified to bid for Binani Cement under Section 29 (A) of the IBC.
The aforesaid section deals with various ineligibility parameters for resolution applicants. As per Section 29 (A) (c) of the IBC, any person or promoter who is managing a company classified as non-performing asset for a period of one year till the commencement of insolvency proceedings stands disqualified. The provision mentions that any other person acting jointly or in concert with the ineligible resolution applicant also stands disqualified.

As per a source in Dalmia Bharat, the primary reason for their claim rests on the fact that UltraTech had tried to financially back the promoter of Binani Cement — Braj Binani — for an out-of-court settlement with the lenders. According to the source, Brij Binani is disqualified to place any bids under section 29 (A) (c) and since UltraTech had cooperated to finance Binani, it too stands disqualified.
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In March this year, UltraTech had given a public notice on the stock exchanges that it has concluded an agreement with Binani Cement and had also financed a Rs 7.5 billion bank guarantee for Binani Cement when the lenders wanted “some confidence of guarantee from Binani” for an out-of-court settlement.
On the other hand, Binani Industries, which owns Binani Cement had also sought approval from shareholders to finalise its deal with UltraTech.
As per the agreement between UltraTech and Binani Cement, the Aditya Birla Group company had agreed to pay Rs 72.66 billion to Binani Cement for the takeover of over 98 per cent stakes in this company on the condition that insolvency proceedings are terminated. A comfort letter was also issued by the Kumar Mangalam Birla controlled company to Binani Cement to this effect.
However, Binani Cement had failed to conclude an out-of-court settlement with its lenders.
Calls to an UltraTech spokesperson remained unanswered.
Besides, Dalmia Bharat has also approached the Supreme Court to obtain a stay on the order of NCLT, which not only admitted UltraTech’s proposal but also directed the CoC to consider Dalmia Bharat’s proposal only if it is able to outbid UltraTech.
After a second revision, UltraTech’s offer stands at around Rs 79 billion while Dalmia Bharat’s offer stands at Rs 67 billion.
Sources among the lenders said that the CoC meeting will take place as scheduled in Mumbai and “legal advice” needs to be sought by them after receiving the letter from Dalmia Bharat.
“Anyways the UltraTech proposal will be up for discussion only as per NCLT’s order and will not be put to vote on Thursday”, a lender said.
Sources said UltraTech has been asked to turn up for this meeting at around 4 o’clock in the evening — the time when its proposal will be up for discussion.
The operational creditors of Binani Cement, who will debut in the CoC meeting is expected to push for 100 per cent recovery of their dues and ask the CoC to approve any plan which takes care of their claims.
Previously, after issuing a Letter of Intent to Dalmia Bharat led consortium after the bidding process, the CoC had approached NCLT for approval of this resolution plan. In turn, UltraTech had challenged to resolution process and approached the same Tribunal. NCLT’s final order has been in UltraTech’s favour.

Binani Cement resolution back to NCLT after promoters withdraw appeal in SC

After the debate over acquisition of Binani Cement reached the country’s apex court, it is back to square one in the Kolkata bench of NCLT, as Binani Industries, which is hitherto seeking approval for an out-of-court settlement, withdrew its petition at the end of a 20-minute argument.
The Supreme Court bench, consisting of Justice A. K. Goel and Justice R. F. Nariman, questioned the rationale behind intervention of the Supreme Court in the case as several litigations from various stakeholders are up for hearing in NCLT and the NCLAT is also supposed to take a call on this matter on April 19.

Sources confirmed that the decision on the matter is now rests with the Kolkata bench of NCLT which will hear the matter back again on Monday, April 16.
Sources told Business Standard that Binani Industries, the promoter of the potentially bankrupt Binani Cement, which is seeking an out-of-court settlement with it’s creditors, has come up with a new strategy which led it to withdraw the petition.
Asked about why Binani Industries withdrew its petition, a spokesperson from Binani Cement said, “We’ll tell NCLT on Monday’s hearing whatever we have to say”.
However, the spokesperson reasoned that “Challenge to the resolution plan is pending adjudication before the Kolkata bench of NCLT”, which led the promoters to withdraw the appeal to Supreme Court.
Previously, following the creditors’ decision that an out-of-court settlement would be acceptable only if Binani Industries had the permission of the Supreme Court, and challenging an interim order passed by NCLAT on April 5, it approached the apex court.
However, sources close to Binani Industries suggested that at a later date, it can still go to Supreme Court.
Sticking to Binani Industries’claims during the NCLT proceedings before, Harish Salve, who represented Binani Industries on April 13 in the Supreme Court, argued that the Insolvency and Bankruptcy Code (IBC) or any other law did not bar full payment of the debts and the Rs. 76 billion settlement to the creditors offered by Binani Industries would benefit all the stakeholders associated with the company.
In turn, C.A. Sundaram, who represented the H1 bidder in the IBC process, Dalmia Bharat Cement and its consortium, alleged that the promoters of Binani Cement were using extra-judicial means to get out of the insolvency process with the financial help of UltraTech Cement, the runner-up in the bidding process.
Sundaram iterated that the scheme of IBC was to reconstruct a failed company and not merely to get the debt back. The argument is in stark contrast to what the Kolkata bench of NCLT has held – maximisation of value – which led it to suggest an out-of-settlement while responding to a plea from Binani Industries.
At the end of the argument, Binani Industries abruptly withdrew its petition resulting in the Supreme Court unable to pass either an order or pronounce any observations on this issue.
Mahendra Singhi, CEO at Dalmia Bharat Cement said, “The message is loud and clear that once an H1 bidder has been chosen through a rigorous process as laid down by the IBC code, the sanctity of the same needs to be preserved. We are encouraged by the fact that the primacy of the IBC code in insolvency cases has been established and this will help in attracting high quality domestic and international capital to facilitate resolution of the mounting NPAs of the banking sector in an expeditious manner”.
He added, “Now the resolution process will follow the IBC procedure and we are ready to make the payments for taking over Binani Cement under the IBC framework”.
Nevertheless, the disbursal of payments to the lenders will depend on NCLT’s course of proceedings.
A group of operating creditors led by Swastik Coal Corporation also moved the court but their petition would be taken up by the same bench on April 19. According to them, they had been kept out of the committee of creditors and wants to be treated at par with financial lenders.
Previously, on March 27, the Kolkata bench of NCLT suggested the lenders to consider Binani Industries’ proposals even after a letter of intent (LOI) was handed over to Dalmia Bharat Cement, the H1 bidder; but the lenders didn’t discuss it citing there was no written directive from the tribunal. Thereafter, again on April 2, the same bench of NCLT, passed a written order asking the lenders to consider the proposal.
The lenders first met on April 4 and while sticking to the Dalmia Bharat Cement’s proposal, asked Binani Industries to increase their offer and submit earnest money and bank guarantee to prove their sincerity. On April 7, the lenders met again on the revised offer from Binani Industries but didn’t submit the outcome of the meeting to NCLT on April 9. The same day, the legal counsel of Binani Industries informed NCLT that they have submitted a special leave petition with the Supreme Court on April 7.
Sources clarified that while it is legally binding on the lenders to go ahead with the Dalmia Bharat Cement proposal as LOI has been issued, it is morally binding on the creditors to consider Binani Industries’ proposal as lenders have accepted earnest deposit from the promoters of the bankrupt firm.

Insolvency proceedings: Binani Cement likely to move SC on UltraTech plan

Binani Cement is likely to move the Supreme Court on Monday to end insolvency proceedings against it. The company’s lenders have asked it obtain the necessary permission before consenting to an out-of-court settlement.
The lenders met on Saturday. After the meeting some of them confirmed the meeting was held to consider the cement maker’s revised proposal to pay back the entire sum it owed, along with interest.
A banker said they were happy with the proposal. “It is an excellent proposal, but we need the Supreme Court’s approval to go ahead with this. Binani Cement told us it is going to move the Supreme Court on Monday,” he added. A source close to Binani also confirmed the plan to move Supreme Court.
Earlier this week, the lenders had turned down a proposal by Binani Cement to pay them Rs 72 billion. The promoters of the company then increased the offer to Rs 75 billion.
At the meeting, lenders considered whether such a proposal could be accepted in the current Insolvency and Bankruptcy Code framework. They questioned if they could entertain an out-of-court settlement suggested by the National Company Law Tribunal (NCLT) and whether the NCLT had the power to make such a suggestion. Some lenders were of the opinion that once the creditors of an company had accepted a bid, they were in a legally binding contract with the winner.
ALSO READ: Road to insolvency: Binani operational creditors 'aghast' at Dalmia's offer
Dalmia Bharat has won the bid for Binani, and has also deposited an initial payment with the creditors to honour the agreement. The creditors have already written to the NCLT approving the insolvency plan.
Since then, Binani Cement, backed by UltraTech Cement, has come up with an alternative proposal to pay its secured, unsecured and operational creditors in full.

ALSO READ: Road to insolvency: Binani promoters sweeten offer to lenders by Rs 2.5 bn
Dalmia Bharat has claimed that a reversal of the insolvency process at such an advanced stage will set a bad precedent. “Any out-of-court settlement for a company while it undergoes bankruptcy proceedings will set a bad precedent for other investors, including global ones,” said Sanjeev Gemawat, executive director, legal, Dalmia Bharat. “Enforcement of contracts is critical to attract investment in the country. How can one offer confidence to the market and the global investors if one flouts a legal contract?” he pointed out.

Creditor's panel to take call on Dalmia's Binani Cement resolution plan

Despite UltraTech Cement raising its bid to Rs. 69 billion to outmatch the one quoted jointly by Dalmia Bharat Cement and Bain Capital's Resurgent India Fund of Rs. 67 billion in the quest to acquire Binani Cement, the former's resolution plan is poised to be placed before the Committee of Creditors (CoC) for voting early next week.
A source aware of these developments said, "Usually, it is seen that if the CoC voting is in favour of the resolution plan, it approaches the NCLT for final approval in 2-3 days" adding that once a bidder is selected by the CoC, any subsequent higher or other secondary bids cannot be considered.
"In the CoC meeting, the resolution plan put forward by Dalmia Bharat Cement and Bain Capital's Resurgent India Fund has got the official approval thereby making it the H1 bidder. Once it is accepted, it is deemed to be closed and changes cannot be made", the source said furthering that bids can be quoted and modified only at the initial stages of application and once a resolution plan is approved and an H1 bidder is chosen, modifications to an approved resolution plan is not allowed.

"One has to follow the guidelines set by the vigilance commission and the government and lenders will be reluctant to discuss any modified bids from other competing companies", the source said.
The Competition Commission of India has also nodded to the acquisition of Binani Cement, the largest subsidiary of Binani Industries, by Dalmia Bharat Cement.
Given these considerations, the CoC has to take up Dalmia Bharat Cement's resolution plan for voting.
Previously, UltraTech Cement had moved NCLT questioning the process of selecting the bidder and alleged that it wasn't let known by the resolution professional about why its bid was rejected.
While claiming an asset valuation of Rs. 173 billion, Binani Industries, the promoter of Binani Cement, had also alleged that assets of Binani Cement has been undervalued during the resolution plan and moved NCLT in its own capacity.
In July 2017, Bank of Baroda dragged the Rs. 38.84 billion debt laden Binani Cement to NCLT after the former failed to repay the bank a loan of over Rs. 0.97 billion. The case was admitted and subsequently, Vijaykumar Iyer was appointed as the resolution professional. JSW Cement initially led the bid but its resolution plan was rejected and fresh bidding process was announced from which the Dalmia Bharat Cement- Bain Capital's Resurgent India Fund consortium emerged as the preferred bidder.
If the deal is finally endorsed by NCLT, it will be the third such acquisition by Dalmia Bharat Cement, the previous others being the bankrupt Murli Cement and Kalyanpur Cement.