Jaiprakash Associates, a heavily-indebted Indian conglomerate, will sell a majority stake in a cement plant to Aditya Birla in one of the first signs of significant asset sales by debt-strapped companies in Asia’s third-largest economy.
Jaiprakash’s subsidiary, Jaypee Cement, will sell a 51 per cent stake in a facility in the western state of Gujarat in a deal worth Rs38bn ($600m), as it attempts to cut net debts which stood at Rs605bn at the end of the past financial year.
The diversified group, which has interests ranging from infrastructure and power to real estate, is one of several Indian conglomerates whose debt levels have soared, against a backdrop of slowing macroeconomic growth and delays to major projects.
Many of these indebted groups, including Essar and Adani, have also been forced to seek loan extensions or debt restructuring agreements, raising concerns about the potential impact of rising corporate debts on India’s state-dominated banking system.
Jaiprakash borrowed heavily to invest in major infrastructure projects, including the construction of India’s only Formula One racing track, as well as the Yamuna Expressway, one of the country’s most modern highways, close to New Delhi.
However, a mixture of weak economic conditions and project over-runs have left the company facing debt repayments of Rs83bn during this financial year, according to a report from Credit Suisse, forcing its management to sell major assets.
Manoj Guar, Jaiprakash chief executive, said that the company was now “focused on debt reduction across all businesses” and would consider further measures to improve its balance sheet.
Jaiprakash stock jumped 6 per cent on news of the deal, a sign that investors hoped the company would now off-load further assets, despite the fact that the cement facility’s sale price was below the level initially expected by the company’s management, analysts said.
“The market likes this deal because it is one of the first large domestic assets sales from one of these indebted groups,” said one senior figure at a Mumbai-based bank, who spoke on condition of anonymity. “The hope is that they [Jaiprakash] will now sell more to reduce leverage, which we haven’t seen much of so far.”
Shares in the Aditya Birla group’s UltraTech Cement subsidiary, India’s largest cement company by revenue, also rose by close to 2 per cent on news of the deal.