UltraTech keen to take over JP Super despite new deal between Jaypee and Dalmia Cement

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UltraTech Cement is keen to take over Jaiprakash Associates’ Dalla Super (earlier known as JP Super) cement asset in Uttar Pradesh, post completion of the arbitration process, a senior company executive said.

Meanwhile, Jaiprakash Associates has already entered a new agreement with Dalmia Cement Bharat, for the asset in question.

“The Dalla asset, it's under arbitration, let that process get completed, and we'll then take over that asset,” said Atul Daga, executive director and chief financial officer at UltraTech, in the post-earnings call for the March 2023 ended quarter.

The Dalla asset, as noted by Daga in the earnings call, comprises a 2.3-million-tonne clinker capacity and a limestone mine capacity of 100 million tonne. These were part of a larger cement deal that UltraTech agreed to buy from Jaiprakash Associates in 2016.

An email query sent to UltraTech Cement remained unanswered. Concerned officials at Dalmia Cement refused to comment on the story. Attempts to reach out to Jaiprakash Associates on the investor contact mentioned on the group website remained unanswered.

Daga’s comments came shortly after Dalmia announced an agreement to acquire the Dalla asset on April 25.

Dalmia Cement said it has executed a definitive agreement with Jaiprakash Associates for the acquisition of JP Super for Rs 1,500 crore and costs and expenses of up to Rs 190 crore. The company added the agreement is subject to clearances and approvals, including the final outcome of the pending arbitration between Jaiprakash Associates and UltraTech.

The arbitration

Both Jaiprakash Associates and UltraTech reported an arbitration over the asset in their December 2023 ended quarter results. However, the reason for arbitration differs depending on whom you ask. At the centre of this arbitration is the failed redemption of redeemable preference shares (RPS) of Rs 1, 000 crore issued by UltraTech in favour of Jaiprakash Associates in June 2017, and placed in an escrow and subject to certain precedents related to the Dalla Super deal.

UltraTech, in its footnotes for the December-2022 ended quarter financial results, claimed the redemption failed due to inaction on the part of Jaiprakash Associates in signing the joint instruction notice.

Jaiprakash Associates, however, in its footnotes for December 2022 ended quarter results said in view of UltraTech’s failure to redeem the RPS issued in favour of Jaiprakash Associates on the due date as per the terms, and its failure to exercise the option to waive the fulfilment of relevant condition within the permissible time, UltraTech’s right to obtain the transfer and vesting of Jaypee Super Plant of Jaiprakash Associates along with the mines under Blocks 1, 2, 3 & 4 in Sonebhadra, Uttar Pradesh, stands ceased.

The Contenders

In the same December 2022 ended quarter, Jaiprakash Associates announced a fresh deal for the assets with Dalmia Cement, as part of a larger deal worth an enterprise value of Rs 5,666 crore. This was followed by the definitive agreements signed in April. Out of caution, Dalmia Bharat is executing this deal in three tranches with the third tranche comprising the Dalla asset.

“The parties are negotiating terms of certain agreements which should be signed soon. The parties are actively engaged to complete the acquisition. DCBL has also received approval from the Competition Commission of India for this acquisition. The acquisition will be completed over the next few months once the identified conditions are met including approval of the lenders of JAL and other necessary regulatory approvals,” said Prasenjit Chakravarti, Partner, Khaitan & Co, the legal firm was one of the advisors to the Rs 5,666 crore worth Dalmia-Jaypee deal. Chakravarti refused to share a comment specifically on the arbitration.

The Dalla asset also gains importance from the access to limestone reserves point of view. Analysts with Asian Markets Securities in a March 2023 report said, “Uttar Pradesh doesn't have limestone except Super Dalla complex of UltraTech Cement (erstwhile with Jaiprakash Associates) and hence, no additional clinker capacity can be set up.”

For similar clinker-related reasons, analysts note the deal is crucial for Dalmia Cement. “This matter is currently sub judice and unless we hear the final verdict on the same it’s difficult to comment. However, if Dalmia gets the asset, basically the clinker unit, it will help in achieving higher cement production from the central region for the company as the majority of the assets under the JP-Dalmia deal are located in the same region,” said Uttam Kumar Srimal, an analyst with Axis Securities.

The Fallout

Daga, in the earnings call, did not answer queries related to how this asset ended up in arbitration.

“The deal was stuck as Jaiprakash could not get some regulatory clearances like forest,” said the analyst, requesting anonymity. The analyst added he expects this to be a long-drawn legal battle now.

Media reports, attributing unnamed sources, in July last year also noted a mismatch of redemption value between UltraTech and Jaiprakash Associates.

According to transcripts of UltraTech’s quarterly interactions with analysts in the last financial year, top executives from UltraTech have pointed out that the limestone mines were under forest litigation. Further, until July 2022, UltraTech was also confident to start production from this asset by the end of 2022.

“You will recall we have held back Rs 1,000 crore from the original consideration paid in June 16. After settling all the costs pertaining to forest clearances and land acquisitions, the balance money will be released to the sellers at the time of taking over the asset. There are lots of government or regulatory clearances that have to be taken but I am hopeful that we should be able to clear everything and the asset should start production before the end of this calendar,” Daga told analysts in July. However, by the end of the December 2022 quarter, the asset had landed in arbitration.