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THE $28-billion Aditya Birla Group has said that it was spinning off the cement business of Grasim Industries into a wholly-owned subsidiary Samruddhi that will eventually be merged with the group’s Ultratech Cement to maximise shareholder value and consolidate its cement business.

   The group controls a fifth of the world’s second largest cement market and is looking at an investment of Rs 15,000 crore to maintain its share. Grasim’s whole-time director and chief financial officer Adesh Gupta said the diversified company had invested Rs 8,500 crore in cement over eight years by using cash from its viscose stable fibre business.

   “Investors now want a pure play company to take the group’s cement business to a new level,” Mr Gupta said.

   Samruddhi will issue one equity share of Rs 5 each to the Grasim shareholders for every share they held and will be listed with the stock exchanges. Post the transaction, Grasim will directly hold a 65% stake in Samruddhi while Grasim shareholders will own the remaining 35%.

   According to Mr Gupta, Samruddhi has resolved to pursue its consolidation with UltraTech, in which Grasim owns a 56% stake. Mr Gupta, who is also a director of Samruddhi, said the entire consolidation process is expected to be over in six to eight months. Post consolidation, Grasim will hold anything between 56% and 65% stake in Ultra-Tech.

   Group chairman Kumar Mangalam Birla said in a statement that the structure of transferring Grasim’s cement business to UltraTech via Samruddhi was found superior as it would ensure Grasim’s strategic control in UltraTech.

   The company examined two other options: a vertical split of the cement business or a merger of UltraTech with Grasim. The first option would have given more direct holding to Grasim shareholders, but it would have resulted in loss of Grasim’s control over UltraTech. The second option would have not created a pure play cement company, Mr Gupta said.

   “The structure of the transaction is a balancing act which aims at keeping Grasim’s strategic ownership as well as rewarding the Grasim shareholders,” said Vallabh Bhansali, chairman of Enam Securities, which advised Grasim along with DSP Merrill Lynch.

   Grasim will transfer the assets having an annual production capacity of 26 mt along with the liability of Rs 2,000 crore, which is less EBIDTA of Grasim’s cement business in a year, said Mr Gupta. UltraTech has 24 mt of cement capacity. Grasim will invest Rs 1,000 crore to set up a greenfield plant in Gujarat to scale up its viscose staple fibre by 25%. Cement earns 67% of revenue for Grasim.

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