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Jaiprakash Associates to repay Rs. 3,100 crore FCCBs ahead of maturity

Posted by sandhyaravii on May 25, 2012

NEW DELHI: Delhi-based Jaiprakash Associates has decided to repay about Rs. 3,100 crore ($550 million) of foreign currency convertible bonds (FCCBs) ahead of their September maturity.

The company, which had sought Reserve Bank of India (RBI) approval earlier this month, hopes to make the prepayment by next month. The move by the diversified conglomerate comes at a time when the rupee is losing ground against the US dollar.

Confirming this, Jaiprakash Associates’ executive chairman, Manoj Gaur, told ET that the company has tied up the necessary funds from internal accruals and marginal borrowings.

In a separate development, the company has changed its plan to bring in a financial investor in parts of its cement business. It is now looking at an outright sale of its cement operations in Gujarat.

Earlier this year, Jaiprakash Associates had demerged its cement operations in Andhra Pradesh and Gujarat into a separate entity with a plan to divest minority stake to private equity firms.

“The company is in serious discussions with a global cement giant for an outright sale of the Gujarat plant. The transaction is expected to fetch about Rs. 6,000 crore,” said another person familiar with development. The plant has an installed annual capacity of about 5 million tonnes, which can be doubled with marginal investment, the source added.

Gaur refused to give details on the cement business but said: “We are exploring various options and are in serious discussion with some leading financial investors and cement manufacturers.”

According to the source, financial investors were reluctant to give controlling premium for a minority stake. “So the company is looking at outright sale of small cement assets in western India with installed capacity of about 5 million tonnes, which would attract significant premium.”

In September 2007, Jaiprakash Associates had raised $400 million (Rs. 1,620 crore then) through FCCBs at zero interest rate. Bondholders have the option of converting them at Rs. 165.17 a share. However, if they decide to take their money back, the company has committed to give a redemption premium of 47 per cent, which would give an annualised return of 7.95 per cent.

On Thursday, shares of Jaiprakash Associates closed at Rs. 59.75 on the Bombay Stock Exchange, a discount of about 64 per cent from the conversion price.

Out of the $400-million worth of FCCBs, investors have already converted bonds worth $4.5 million while the company has bought back bonds worth $41 million. The company will now have to repay Rs. 3,100 crore, which includes a premium of about Rs. 1,100 crore.

The FCCB proceed was used for capacity addition in the cement business, whose timely completion has boosted cash flows, Gaur said.

As against the sector growth of 5.1 per cent, the group registered a growth of 23 per cent in cement dispatch in 2011-12.

The FCCB repayment will be financed from the firm’s internal accruals from cement and real estate while the partial sale of its cement business will be used to reduce the company’s debt, Gaur added.

On the rupee’s slide, which has resulted in significant FCCB liability, he said, “We are very much concerned on how the dollar moves.”


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