NEW DELHI | MUMBAI: India’s largest cement maker UltraTech Cement will acquire Jaiprakash Associates ’ cement factories in six states for an enterprise value of Rs 16,500 crore, among the biggest distress sales of assets as India’s banks get proactive on bad loans.Once the deal is completed, the Aditya Birla Group company’s capacity will go up to 90.7 million tonnes per annum (mtpa) from the current 68.3 mtpa, giving it an entry into central India and enhancing its capacity in north and south India. The plants have a combined capacity of 22.4 mtpa.“The assets will give the company access to newer markets of MP, Uttar Pradesh East, Himachal Pradesh and coastal Andhra where it does not have a presence as of now,” Ultra-Tech said in a statement. Jaiprakash Associates Executive Chairman Manoj Gaur said the deal will help UltraTech get closer to the 100 mtpa mark.The agreement includes a 4 mtpa plant under implementation at a cost of Rs 470 crore and factories in Madhya Pradesh, Uttar Pradesh, Himachal, Uttarakhand, Andhra Pradesh and Karnataka.ET first reported that UltraTech was a suitor for the assets in December 2015. The deal announcement comes two days after UltraTech called off a deal with Jaiprakash Associates to buy two cement assets in Madhya Pradesh citing regulatory issues. Both parties had entered into a scheme of arrangement for the plants in December 2014.These assets were folded back into a larger deal package that got announced on Sunday. The transaction is subject to definitive agreements and regulatory approvals.The cement assets of the Jaypee Group, one of the most indebted conglomerates in the country, are mostly housed under the flagship listed company Jaiprakash Associates (JPA). As group holding company, JPA also owns shares in other ventures engaged in power, real estate, sports, roads and construction, some of them listed. On a consolidated basis, its debt amounts to .`60,000 crore, according to Bloomberg data.The final structure of the deal will be dependent on the proposed amendment of the Mines and Minerals Development Regulation Act (MMDRA), said people with knowledge of this. If the amendment is not in place by March end, JPA will be split into two entities.The existing listed entity — Jaiprakash Associates — will hold the plants in the six states with a total capacity of 22.4 mtpa. The other will be a vertically demerged entity that will house the remaining cement units along with all other non-cement businesses.The Jaypee Group promoters will then divest their entire stake — 39.38% as of December 2015 — to UltraTech, which will then make a mandatory public offer to non-promoter shareholders for an additional 25%.By selling the shares of the company, which in turn owns the assets, the transfer of mines will be easier. MMDR currently does not permit such transactions unless the assets are auctioned. However, if the amendment comes through, then the entire 22.4 million tonnes will be hived into a stepdown subsidiary of JPA and sold to UltraTech.This is believed to be the preferred route for the transaction, according to one of the executives cited above. Under the proposed deal, UltraTech will acquire debt of about Rs 13,500 crore and pay Rs 3,000 crore in cash, which will be used to repay part of JPA’s debt. “Currently, Jaiprakash Associates has (standalone) debt of Rs 31,000 crore, which will come down to about Rs 14,000 crore after the completion of the divestment of the cement division,” said one of those cited above.Standard Chartered Bank advised UltraTech on the deal. An EV of Rs 16,500 crore translates to $108 per tonne, making it a bargain for Ultra-Tech, analysts said. In December 2014, when UltraTech had agreed to buy the 4.9 mtpa plants in MP, it had agreed to pay Rs 5,400 crore, or about $160 per tonne, 48% more than the current price.“The valuation of the deal is quite cheap. UltraTech is getting readymade and operating plants, helping it save on the time and costs involved in setting up new cement plants,” said Vijay Goel, cement analyst at Karvy Research. “Today, given the clearances (chiefly land), it takes over five years to set up a cement plant and the cost is pegged at $140 per tonne.”The transaction also highlights the growing trend of lenders putting pressure on debt-laden business houses to sell assets and deleverage the balance sheet. “Due to rising non-performing assets in the banking sector, it is a purely buyers’ market where the seller does not have much choice other than agreeing on the term sheet offered by the buyers,” said an investment banker.“This deal clearly reflects the assertiveness of Indian lenders and vulnerability of India Inc.” After several failed attempts by Jaypee to sell its cement business in the last two years, the lenders prevailed upon the company to sell a lion’s share of its portfolio in one shot. The company had already divested assets worth Rs 5,000 crore in three states – Gujarat, Jharkhand and Haryana – but its debt burden left it with few choices.Late last year, Jaypee roped in ICICI Securities for a formal sale process that also saw competing bids from KKR, Dalmia Bharath and Brookfields. The process was also monitored by executives of a group of four lead lenders – ICICI Bank Axis Bank and IDBI Bank . The last date for receiving the bids was February 15.The final call was taken last Friday, said people aware of the matter. Gaur was asked by the lenders to finalise the deal with Ultra-Tech – the highest bidder – by Saturday. After the sale, the Jaypee Group will retain a little over 8 mtpa of installed capacity, including a 2.1 mtpa plant in Bhillai that’s a 74:26 joint venture with Steel Authority of India Ltd. JPA is already in negotiations with Shree Cement to divest its stake in Bhillai Cement for Rs 2,100-2,200 crore.“The group has been aggressive in selling assets to prune its debt over the past two years... Jaiprakash Associates has already concluded sales of 8.4 mt of cement capacity for Rs 50 billion, but debt levels are estimated to be still up 18% over the past two years," Credit Suisse analysts wrote in an October 2015 note.“Jaiprakash Power has also sold two hydro plants of 1,391MW capacity for Rs 9,300 crore and is in talks for sale of its 500 MW Bina project. However, as the 1,391 mw hydro plants contributed 59% of FY15 EBIT, the loss of EBITDA from these projects would result in debt-to-EBITDA moving up further," they added. From JPA’s point of view, the deal does not make things exceptionally better in terms of its overall business.Analysts point out that JPA’s cement business has been generating substantial cash flow and it contributed close to 33% to standalone EBIDTA. They said that though it may reduce its debt by Rs 16,500 crore, it also deprives the company of cash flow.