ACC, India’s single-largest cement maker and part of Holcim, is likely to decide this week on conversion of equity warrants in Shiva Cement. The conversion could substantially increase ACC’s equity stake in the Orissa-based cement company.
ACC, which currently owns about 14.45% in Shiva Cement- as per information available with the BSE- could see its shareholding in Shiva go up to about 25%, after the conversion of warrants.
Such a move would trigger an open offer by ACC as its shareholding would cross 15%, as per the takeover regulations laid down by the Securities and Exchange Board of India.
If the open offer is fully subscribed, ACC would emerge as the largest shareholder in Shiva Cement with a 45% stake. The promoters hold a 27.4% stake in the company.
ACC executives declined to comment on the issue, saying any response could be made only after the board meeting scheduled for December 15. The Shiva Cement stock surged 4.8% to close at Rs 4.79 on Friday on the BSE. The stock fell 8.4% last month.
ACC had subscribed to 2.27 crore warrants in Shiva Cements in 2007 and they are due for conversion in December 2008. The cement major had invested Rs 46 crore through a preferential allotment of 1.45 crore shares and warrants issue, both of which were aimed at financing Shiva Cement’s capacity expansion plans. The Rourkela-based Shiva Cement has a clinkering capacity of 350 tonnes per day and a cement grinding capacity of 1.3 lakh tonnes.
According to sources close to the development, although small in capacity, Shiva Cement has great synergies with ACC, as both have strong presence in the east, which is currently seeing major infrastructural activity and hence, requires cement. ACC, which has cement units spread across the country, also has a plant in the same region, at Bargarh.
Currently the Bargarh plant’s capacity of 0.96 million tonnes is being raised to 2.14 million tonnes. Increased production at ACC Bargarh is scheduled to begin in 2009.
ACC had earlier signed a supply agreement with Shiva Cement for five years and under this, Shiva’s entire production was to be purchased by ACC and marketed under its brand. Cement despatches from Shiva Cement’s plant under the ACC brand have started since April 2007.
A possible move by ACC to convert the warrants also underscores the current trend in the Indian cement industry, which despite shrinking valuations is seeing a lot of interest from foreign cement majors.
Analysts say that falling valuations, prompted by weak prices and a slowing demand, haven’t affected the robust potential of the industry considered to be the second-largest cement market in the world after China. Foreign cement majors are keen to acquire existing units in India as it is relatively cheaper than setting up a new cement plant.
ET last week reported that a host of multinational cement makers, including Lafarge, CRH and Italcementi, all rivals of Holcim, are actively considering options to acquire Andhra Cements of the Duncan Goenka Group. According to conservative estimates, the acquirer could pay around Rs 75 per share or Rs 925 crore to buy the promoters’ stake and for the open offer.