How has Binani Cement ended up facing insolvency?
The interest in the insolvency-stricken Binani Cement has been mounting since the summer and large investors are now lining up to bid for the portfolio of cement plants in India, China and UAE. But what went wrong for Binani Cement and who is set to gain?
Debt burden catches up with Binani Cement
In July 2017 the Kolkota branch of the National Company Law Tribunal (NCTL) admitted a petition against Binani Cement, a subsidiary of Binani Industries, for insolvency proceedings to start after the cement producer had defaulted on a payment of INR977m (US$15m) loan to the Bank of Baroda.
However, the Edelweiss Asset Reconstruction Company, which now leads a consortium of lenders that are owed close to INR30,429.3m, has called upon the tribunal to reject the claim, along with claims by IDBI Bank and the State Bank of India. The tribunal has scheduled the next hearing on 12 December.
In addition, there is a potential winding up order hanging over parent company Binani Industries, after it defaulted on a INR56.5m bill to advertising agency Milestone Brandcom Pvt Ltd for an advertising campaign between 2009-16. The Kolkata High Court has ordered Binani Industries Ltd to pay interest at 18 per cent per annum to Milestone. Binani Industries has until 4 December 2017 to avoid the winding-up order, which lawyers say could affect the insolvency proceedings against Binani Cement and the potential acquisition of Binani Cement.
Binani – a victim trying to expand during construction slowdown
Binani Cement has been on the backfoot for the last few years. The company's goal was to expand in China at just the time when Indian construction slowed and the financial markets crashed.
Furthermore, the Chinese authorities prohibited further cement capacity expansion in preference to industry consolidation and the decommissioning of inefficient wet-process plants.
The project to expand the company's production base with a new plant in Mauritius had already been scrapped by October 2012 when Binani Cement could not secure enough land for a 6.5ha site for the factory.
By 2013 Binani Industries had been forced to sell a 40 per cent stake in Binani Cement to raise capital.
However, India’s market slowdown was the final blow to Binani Cement. It soon fell into discussions in February 2015 to sell its 1.2Mta Neen Ka Thana grinding unit in Rajasthan to further reduce its debt.
In August 2016 Binani Cement was also among 11 companies to have penalties imposed after the Competition Commission of India market price fixing allegations were investigated. The fine ran to 50 per cent of the company’s net profits in 2009-11.
"The company had aggressive expansion plans but the problems started when Indian infrastructure saw a slowdown in growth,” said a source talking to the Economic Times.
The debt has increased in past few years to a high level. The company also ran into trouble with revenue authorities and legal battles.
Attractive assets
However, the company presents a strategic opportunity for potential bidders. The cement capacity of Binani Cement is 11.25Mta and it operates integrated cement plants in India and China as well as a grinding unit in Dubai, UAE. The combination of its export potential and considerable raw material reserves and mines near its plant location in Rajasthan are key considerations in a possible take-over.
"Binani Cement has export potential due to presence in the Middle East along with substantial mine reserves at the plant location which would result in reduced manufacturing costs and hence make the assets attractive to any serious domestic cement player," said a source speaking to the Economic Times in August 2017. "Moreover, the plant location in Rajasthan will provide access to the Gujarat market."
The buyers line up
The potential buyers are circulating as the Indian sector goes through further restructuring and consolidation. This year has already seen the Jaiprakash Cement sell its stake in Bhilai Jaypee Cement to Orient Cement to reduce debt, UltraTech moved to acquire Jaiprakash Cement and JSW Cement bought into Shiva Cement.
The fate of Binani Cement’s assets will be keenly fought over. Some 15 bidders are reported to be considering making bids, including leading multinationals CRH, LafargeHolcim and HeidelbergCement.
Bidders for Binani Cement will be able to submit resolution plans up to the closing date of 22 December 2017 and an estimated closing date for the process is scheduled for 21 January 2018.
