New Mining Rules in India Could Spur Mergers and Acquisitions in Cement Industry

A new set of rules is expected to roil the Indian cement industry, as companies will now be able to transfer licenses for captive mines and not just auctioned mines. Until now, the Mines and Minerals Amendment Act of 2015 permitted the transfer of mining leases for auctioned mines only. As this amendment comes into effect, a number of mergers and acquisitions are expected to occur in the Indian cement industry. The amendment was cleared by the cabinet this week, said a report in Business Standard.

The existing rules had prevented large cement companies such as Reliance Cements, UltraTech, and Lafarge to proceed with major deals, prompting the government to revisit the rules and decide whether amendments were needed.

Now, with the cabinet having cleared the amendment, it will be tabled at the Parliament for clearance. The aim of the amendments is to ensure that deals which involve the transfer of mines that have not been auctioned can also go through smoothly.

There could be another change on the way. Presently, all non-coal mines are handed out on the discretion of the respective state governments. However, if the amendments to the mining law are accepted, non-coal mines will be auctioned.

M&As Stopped in Their Track Because of the Law

The Indian cement industry is witnessing an increase in mergers and acquisitions but in many cases, the law has stood in the way of such deals. Some deals on the brink are:
  • UltraTech Cement – owned by Aditya Birla Group – has agreed to acquire Jaiprakash Associates in an INR 17,000 crore deal, which entails the transfer of 22.4 mn tonne cement capacity. Jaiprakash Cement is currently battling huge debts.
  • Meanwhile, Reliance Infrastructure, owned by Anil Ambani, is trying to ease of its debts by selling to Birla Corp its cement subsidiary for an estimated INR 4,800 crore.
  • Another M&A attempt that was thwarted because of present rules being unfavorable was the merger of Lafarge with Holcim, which was subject to the condition that Lafarge sell two of its units. The condition was laid down by the Competition Commission of India. While Birla Corp was willing to buy the two units from Lafarge, the latter was unable to sell because the laws prohibited the mining rights from being transferred.
With the government now moving to make amendments to the present mining laws, more M&As are expected to occur in the Indian cement industry.

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