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Ultratech joins race for Ambuja Cements and ACC, submits non-binding bid

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Ultratech is India’s largest cement company and the plan it has submitted to Holcim, which owns the two companies, explains how it would meet CCI’s norms

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UltraTech Cement | Ambuja Cement | Ambuja Cements ACC

Ultratech Cement has joined the race to acquire Ambuja Cements and ACC, a subsidiary of Ambuja, by submitting a non-binding bid on Wednesday, banking sources said.

Ultratech is India’s largest cement company and the plan it has submitted to Holcim, which owns the two companies, explains how it would meet Competition Commission of India’s norms.

Ultratech has a total capacity of 120 million tonnes. Ambuja Cements and ACC have a capacity of 64 million tonnes per annum. In Western Indian states, Ultratech and Ambuja have plants in close proximity to each other. To meet the CCI’s norms, Ultratech will have to sell a few plants, said a banker who didn’t want to be named.

Spokespersons of Ultratech and Holcim declined to comment.

Another banker said it does not make financial sense for Birla to buy the companies and then sell some plants at a discount to meet CCI norms. “There are several other cement companies that will be on sale soon,” the banker said.

“The year of consolidation in the cement industry will start post Ambuja sale as more capacity will come up for sale,” the banker said. With a market valuation of Rs 1.8 trillion, Ultratech will be a strong contender for the Ambuja Cements against a bid by the Adani group, which is considered as a frontrunner.

But a strong dollar and rising interest rates are turning out to be a big concern for the bidders who are preparing the cash chest for acquiring the cement companies and later make open offers for the two companies – Ambuja and its subsidiary, ACC.

Bankers said the private equities are seeking an internal rate of return of 20 per cent on their investments for the acquisition – making the cost of acquisition for the Indian bidders very expensive.

“As bidders will have to repay the debt by earning in Indian currency, the falling rupee is not good news considering the investment in both companies will be as high as $10 billion,” said another banker.

Most funding by bidders comes from overseas, with private equities taking the target companies shares as collateral. If the rupee weakens further, it would put additional burden on the acquirer.

“A half a percent rise in the interest post US Fed rate hike and falling rupee is like a double whammy for the bidders. Besides, the acquirer will have to make additional investment in raising the capacity of both companies which have been stagnant for the last 15 years under the Holcim management,” said a banker asking not to be quoted.

All the bidders including the Adani, JSW and the Aditya Birla groups are engaged with bankers and lawyers to strategize on the next steps including getting the Competition Commission of India (CCI) clearance, and making the open offers.

Sajjan Jindal, chairman of JSW Group Chairman, has said his business has offered $7 billion to Holcim. That amount includes $4.5 billion of his own funds and another $2.5 billion of investments from private equity partners. The Adani group has tied up with several Middle East based sovereign funds to acquire the cement companies. Ultratech is raising funds on its own but is not an aggressive bidder, said a banking source.

Bankers said as the Adani group does not have any presence in the cement sector, it will not face any objections from the Competition Commission of India unlike Ultratech which will have to sell several cement units — in case it wins the race.

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