India’s Aditya Birla Group company Grasim Industries Ltd has made the decision to separate its cement division in a demerger with its subsidiary Samruddhi Cement Ltd as part of a plan to merge all production and sales of construction materials into a single company. In this restructuring plan, Grasim will transfer its cement business, including related-businesses/investments, but excluding its investment in UltraTech, to Samruddhi. Grasim Cement's grey cement and RMC businesses will be transferred to Samruddhi post-demerger.
On completion of the demerger, Grasim shareholders will own one share (nominal value: 5 rupees (10 cents)) of Samruddhi for each share they hold in Grasim, meaning Grasim’s shareholders will hold 35% of Samruddhi and Grasim’s stake will be reduced to 65%.
In addition, Samruddhi Cement has been made a wholly-owned unit. The company was a subsidiary of Samruddhi Swastik Trading & Investment Ltd, also a unit belonging to Grasim.
Meanwhile, UltraTech is considering a proposal from Samruddhi Cement to merge with the cement business of the group. Together, the companies will have a capacity of 49 million tpa (20%) of the country's cement production. It is hoped that the merger will cut costs and make it easier to raise funds to expand cement output.
Adesh Gupta, Grasim’s Chief Financial Officer, told reporters: “We want to consolidate the cement business into one company and today’s decision is an intermediate step in that direction. We need to raise at least US$3 billion in the next five years to maintain growth in the cement business and consolidation opens up more financing options.”
After the merger of Samruddhi and UltraTech, Grasim's holding in the consolidated entity would be between 55 and 65%.
In addition, UltraTech is planning a follow-on public offer to fund the expansion of its cement business. The fund-raising exercise will commence once the restructuring of the business is over.
The company has an investment plan of Rs 15,000 crore over the next five years to add about 25 million tonnes of capacity.
The cement business of the group is currently valued at a discount of 10 – 15% to its peers such as ACC and Ambuja, which are owned by Holcim, because of the risks related to Grasim’s other businesses.
Read the article online at: https://www.worldcement.com/asia-pacific-rim/23102009/grasim_consolidates_cement_business/