To exit cement, road businesses fully: Reliance Infra

The Reliance Infra board has approved the sale of the company's cement and road businesses, and the deals are expected to be concluded by December end, Lalit Jalan, Group Director-Strategy & Corporate Affairs--Reliance ADAG, tells CNBC-TV18.He says the Group is selling non-core assets as it needs funds to invest its defence business.The total debt of the cement business is around Rs 2400 crore. Also, the company has invested Rs 8800 crore in its road business.  Jalan says Reliance Infra's debt to equity ratio of 0.97 is comfortable.Part of the proceeds from the sale of the cement and road businesses will be used to reduce the company's debt, Jalan says.Below is the verbatim transcript of Lalit Jalan’s interview with Latha Venkatesh & Anuj Singhal on CNBC-TV18.Anuj: I want to talk about the monetisation of your cement and road business. What is the last valuation of your both cement and road business telling you about the kind of monetisation that you will be able to get? A: The board yesterday took a decision to look at monetising 100 percent of our cement and road businesses. If I look at my cement business, it is a portfolio with an existing operating capacity of 5.6 million tonne and with lot of development assets which are part of the special purpose vehicle (SPV) including other sites. So, this 5.6 million tonne is the state of the art, brand new, world class site. So, this is the entire business which we wish to monetise right now. You know the kind of valuations that older plants have fetched and not the world class plants, so we expect to get better valuations. Latha: When should we hear from you in terms of finalisation of the deal? Does it happen in this calendar? A: We started the process and we have now gone to the final stage. So, we have shortlisted seven bidders from the initial 15 who had strong interest. The due diligence process is on and we hope to conclude it in this calendar year. Anuj: I take your point on some of the older asset sales and your business being slightly better than but still if you could give us some ballpark number in terms of the last valuation that you would have done internally and if you could just give us a range number? A: It is difficult to give a range number. If you see the last valuations, these valuations are all available with you. We are talking about the valuations which are in USD 150, whatever range the last deals have happened. Latha: What is your debt on the books of the company? A: The total debt on the book of the cement business is Rs 2,400 crore. Latha: Will you largely be using the proceeds of the sale of the cement plant to pare debt? A: Yes, the cement debt will go to the buyer and all the equity money that we get, will all help to deleverage the company. Latha: You are also looking to sell-off some of your road assets, how many or which ones? A: We have an entire portfolio of 11 road projects. These are all Build–operate–transfer (BOT) projects at high growth centers like Delhi, Pune, Jaipur connecting all these cities with significantly better traffic growth. The 10 road projects are already revenue operational and our 11th road project is getting revenue operational tomorrow. So, our entire portfolio is revenue operational by the end of this week. We own 100 percent of all our 11 road projects. We are looking to find a buyer to take the entire portfolio. Anuj: Why are you selling these assets in the first place if you know these are good assets and are looking up? A: No, these are excellent assets. We are trying to monetise, get the money, pare down our debt and also our new focus areas is the area of defence which we made a foray last year. So, we need some investments in our defence business also and we are very mindful that although our overall debt equity ratio is very comfortable at less than 1, it is at 0.97-1. However, we are mindful of our overall level of leverage. We want to keep it, we want to reduce it. Latha: The market was talking about a Rs 5,500 crore enterprise value for the cement unit. Fair point, fair number? A: I would not want to comment but there are all kinds of estimates going on in the market but it is not very far away. We are two months away from hopefully the deal closing. Also, in the road business, we have already invested Rs 8,800 crore which comprises of debt and equity. Latha: You were speaking about defence, just wanted to know has the Gujarat Maritime cleared the Pipavav open offer? A: The clearance is still pending and we hope to conclude this transaction by the end of this financial year. Latha: What is the kind of money you are looking at from selling the road assets? A: Again, these are as I told you high quality roads. Latha: I am not looking at a specific road asset, you will have some idea in mind as to how much money you want to raise?A: I can tell you one thing, if I sell it at one time book, then we are talking about an Rs 8,800 crore valuation. Latha: We are on the anvil or about to get some reform announcements from the government, what are you picking up, is it just going to be a transfer of loans from discom books to state government books? As a person selling power and distributing power, what is the kind of solution that is practicable, what are you expecting? A: I don’t have hard data behind me but what I understand is a) the debt gets transferred to the states books thereby reducing the interest rates and of course giving relief to the existing commercial banks. However, it will come with a lot of riders to the states a) to totally revamp their T&D network and they have been supported with the IPDS money b) is to have very strong targets on AT&C loss reduction and then also have at the same time a gradual increase in tariff so that the discoms which are today losing a Rs 1,00,000 crore could become healthy over the next four years. Since the losses will then become part of the state deficits, it will become more incumbent upon the state, keeping their overall FRBM targets in mind, to work on that. Latha: Would you want to update us at all on the defence plans of the company? Is there anything by way of orders, what are we looking at in terms of P&L impact and in which year?A: With the acquisition which we expect to consume by the end of this financial year, next year Pipavav will become a part of Reliance Infrastructure and so the P&L of Pipavav will get appropriately consolidated and we are working on various levers. Of course Piapavav becomes our center of excellence for maritime and we have also made a foray in Mihan, Nagpur which will be our center of excellence for aerospace. So, we are working on many levers, we are working in lots of strategic partnerships with world majors and we expect to announce developments on this on a continuous basis. Latha: How much does your debt go up once the merger happens?A: It will depend on how much is the amount of shares that get transferred to us in the open offer. So it is only once we get an idea of that, that we can give you a number.