Bankruptcy case: UltraTech to pay Rs 73 bn for 98% stake in Binani Cement

It was a day of high drama in the Binani Cement bankruptcy case with promoter Binani Industries entering into an agreement to sell the cement company’s shares to UltraTech Cement, even as the National Company Law Tribunal’s (NCLT’s) Kolkata bench heard petitions from UltraTech and Braj Bhushandas Binani, director and promoter of Binani Cement.

Aditya Birla Group firm UltraTech Cement agreed to buy out parent Binani Industries’ entire 98.4 per cent stake in the Rajasthan-based cement company. The transaction is subject to the termination of bankruptcy proceedings and other regulatory approvals. 

Lenders to Binani Cement had earlier selected Dalmia Bharat over UltraTech to sell the company.

According to a statement by UltraTech, it will pay Rs 72.66 billion to lenders of Binani Cement and free up bank guarantees worth Rs 10 billion.

The NCLT heard the petitions of UltraTech and Binani, which alleged that the resolution professional and lenders reduced the valuation of Binani Cement from Rs 150 billion to just Rs 30 billion. The Binani petition even said the resolution professional had a personal interest in favouring a particular bidder and in undervaluing the company.

UltraTech said Binani Industries approached it to arrange funds to pay its bank debt (around Rs 40 billion), and it had concluded an agreement in principle to buy Binani Cement, subject to termination of proceedings under the Insolvency and Bankruptcy Code (IBC). This was conveyed to the NCLT’s Kolkata bench on Monday, which adjourned the matter till March 22.

“Once a matter is admitted in the NCLT, one has to go by the legal procedure. There is no legal provision which states that such a parallel arrangement can be heard in NCLT,” a source close to Dalmia Bharat said. 

Binani Industries, which defaulted on bank loans last year, requested UltraTech to issue a comfort letter to support its application seeking termination of the insolvency proceedings. The comfort letter, issued on Monday, said UltraTech would provide Rs 72.66 billion, the amount it had offered for Binani Cement to the resolution professional in the first place.

“For the interest of justice, we can try to place the case before the judge with the comfort letter,” a source close to Binani Cement said.

According to UltraTech, the resolution professional and the Committee of Creditors ignored its bid and favoured the offer by the consortium of Dalmia Bharat and India Resurgence Fund, a joint venture between Bain Capital Credit and Piramal Enterprises.

“We followed an extremely transparent process while bidding for Binani Cement. But the resolution professional and the Committee of Creditors chose to ignore our bid. Today we signed an agreement with Binani Industries as they felt our offer was good for all stakeholders, including unsecured lenders,” said UltraTech Cement Managing Director K K Maheshwari. “Till date, we have turned around more cement capacity than the entire capacity of our rival bidder. We have more experience in turnaround cases,” he added.

UltraTech moved the NCLT last week against the resolution professional and lenders for not disclosing details about why its offer was rejected. Maheshwari said the company received a one-line email from the resolution professional that its bid was rejected. After its offer was turned down, Binani Industries approached UltraTech with a proposal last week. “We would never have let the cement company go to the NCLT if we had been approached earlier by Binani,” Maheshwari said.

Binani Cement is a rare case under the IBC where banks will not take a haircut from either offer.

The counsel representing the resolution professional told the tribunal that the resolution plan of Dalmia Bharat had been filed with the Kolkata bench of the NCLT for final approval.

The judge was of the opinion that while it was essential that one should target maximising value from the sale of stressed assets, the resolution plan could not be heard in isolation.

The counsels for UltraTech and Binani Cement also questioned how lenders had come to a conclusion when applications over the bid selection procedure and valuation of assets were pending before the NCLT.

On March 7, UltraTech increased its bid in an email to the resolution professional, Vijaykumar Iyer of Deloitte, after it came to know from media reports that Dalmia Bharat had emerged the highest bidder. According to both Binani Industries and UltraTech, the resolution professional ran a non-transparent and vague bidding process. Last week, the Committee of Creditors also approved the resolution professional’s recommendation to offer Binani Cement to the Dalmia Bharat-led consortium.

Talking to reporters in Mumbai on Monday, Maheshwari said the right to property was guaranteed by the Constitution and the resolution professional could not usurp that right from Binani Industries. Besides, under provisions of the Transfer of Property Act and the Sarfaesi Act, Binani Industries can protect its property even at this stage. “Our offer was Rs 7 billion more than Dalmia’s. Still it was rejected by the resolution professional and the Committee of Creditors. Now the decision is up to the NCLT," he said.

"Our offer takes care of all lenders, secured and unsecured. We did not make any difference between unsecured lenders, unlike the competition. Still our offer was overlooked. The NCLT should look at these issues,” said Ashok Gupta, legal head of the Aditya Birla Group. According to reports, the Dalmia offer took care of only one unsecured lender, IDBI Bank, while "squeezing out" the rest.

In its March 13 hearing, the NCLT had asked Iyer to explain the bidding process followed in the debt resolution exercise.

A Deloitte spokesperson had earlier declined to comment on the issue citing client confidentiality. 

Shares of UltraTech closed at Rs 3,966, down 1.6 per cent, on the BSE on Monday, while Binani Industries declined 5 per cent. Binani Industries is down 32.6 per cent since January, while UltraTech is down 8.2 per cent.