Jaypee Group to sell cement arm for Rs 19,500 cr

According to media reports two private equity firms and a strategic partner are in the race to buy Jaypee Group's cement business at an enterprise valuation of around  Rs 19,500 crore.The sale is expected to be concluded by next March, according to the reports.

The proceeds from the sale will be used by Jaiprakash Associates to retire a part of its Rs 61,285 crore debt held in 2014-15, down from Rs 72,599 crore in 2013-14. It sold 13.3 mt capacity in 2014-15 to repay debts. Jaiprakash Associates' consolidated finance costs touched Rs 7,228 crore in 2014-15.

Jaiprakash Associates is India's third largest cement maker, with annual capacity of 31.65 million tonnes. JP Group has been undertaking a sale of assets in order to pare down its huge debt and be able to repay its interest burden on time.Jaiprakash Associates had earlier sold two cement units in Gujarat and Madhya Pradesh to Aditya Birla group's UltraTech for Rs 3,800 crore and Rs 5,400 crore, respectively. The company also sold its stake in the Bokaro cement unit to Dalmia Cement for Rs 667 crore and the Panipat-based grinding unit to Shree Cement for Rs 360 crore. Besides, the group sold its hydro-power projects to JSW Energy for Rs 9,700 crore earlier this year.

According to Credit Suisse, the Jaypee Group defaulted more than once in repaying loans in 2015. In February, JP Power defaulted on repayment of its USD 200 million foreign currency convertible bonds and had to renegotiate with lenders. JP Power's credit rating was downgraded to default category at the start of 2015. Rating agencies also downgraded JP Associate's debt to default in July. Last week, CARE Ratings downgraded the ratings of Jaypee Cement Corporation to the default category.

JP Group stock plummeted on this news as fear rose among its shareholders about the company's future prospects given this huge pile of debt accumulated by the company. JP Associate's share price plunged almost by 32 percent after hitting a 52-week low of Rs 7.90. JP Power's share price hit rock bottom on default news by correcting almost 50 percent in the past 6 months. JP Infratech too saw its share value erode by more then 40 percent on year to date basis. On the back of this development JP Group stocks are up close to 2 percent in trade.

Though the group has undertaken steps to reduce the debt levels the problem isn't over yet as it carries a large interest burden on its existing debt. Company cash flow has not been rising substantially in order to pay off its interest claims.

The group is not alone in selling assets to repay debt. A host of Indian groups like Essar, Videocon, Lanco, GMR, GVK and Reliance ADA are selling assets as lenders exert pressure for timely repayment.