India: delayed asset sale could help Jaiprakash Associates

To overturn its spiralling debts, Jaiprakash Associates (JA) has been actively seeking to sell off its 4.8Mta cement plant in Gujarat. The release of such assets is seen as a necessity to aid the company's profitability and its stock rating. The company's current net debt levels are estimated at INR602.8bn (US$9.33bn) and JA aims to reduce this amount by INR60bn-70bn (US$9.3bn-10.85bn)

The company is said to be in talks with UltraTech Cement over the Gujarat factory but the delay in closing the deal has not been such bad news for JA which rose nearly 10 per cent to INR33.1/share in this week's stock market. The hold-up in the sale is believed to be due to the valuation of the cement business. JA sets the enterprise value (EV) at around US$140-150 EV/t, but a more realistic sale price will probably be around US$125-128 EV/t. This would mount to INR38.4bn in released asset revenue, while the plant alone accounts for INR18bn of the debt.

The sale will help the perceived value of the company's remaining 30Mta of capacity which currently stands at about US$110/t, according to local analysts.

If JA achieves its debt reduction target, a 12-13 per cent rate of interest would see savings of INR8bn-9bn. This was about 19 per cent of the company's annual interest cost of INR46.61bn in FY13.

The saving would be twice its annual net profit of INR4.2bn, reported in FY13.