UltraTech Will Fight Off A Web Of Litigation To Buy Binani Cement: Exclusive

UltraTech will fight it out in the Supreme Court, if it has to, in order to acquire Binani Cement.

A worker carries a sack of cement under a conveyor in a warehouse at a Pooja Group Of Glass Industries factory in Ferozabad, Uttar Pradesh, India (Photographer: Udit Kulshrestha/Bloomberg)  
A worker carries a sack of cement under a conveyor in a warehouse at a Pooja Group Of Glass Industries factory in Ferozabad, Uttar Pradesh, India (Photographer: Udit Kulshrestha/Bloomberg)  

India's largest cement maker UltraTech Cement Ltd. is readying to fight it out in the Supreme Court, if need be, to acquire debt-laden Binani Cement Ltd. which is currently undergoing insolvency resolution.

“The Insolvency and Bankruptcy Code is an evolving legal framework and it needs to be foolproof,” Chief Financial Officer Atul Daga told BloombergQuint in an interview. The company has been crying foul after its bid was rejected by the lenders. “The way this transaction has been handled is clouded in secrecy,” he added.

Earlier, Binani Industries Ltd. announced that it will apply to the National Company Law Tribunal seeking termination of the insolvency process that its cement arm is currently undergoing. That’s after the company entered into an agreement with Aditya Birla Group-owned UltraTech to sell 98.43 percent stake in Binani Cement for Rs 7,266 crore.

As part of the insolvency process, UltraTech had increased its offer for Binani Cement after Dalmia Bharat emerged as the highest bidder. The Committee of Creditors, however, on March 15 approved the rival bid by the investor group led by Dalmia Bharat and backed by Bain Capital. UltraTech then approached the NCLT.

Daga said that UltraTech's "grievance and bitterness" is the lack of transparency offered by the resolution professional appointed to the case. He alleged that the RP let his subjectivity creep into the process even when UltraTech's bid was qualitatively better than Dalmia Bharat Ltd.'s.

On their own subjective analysis, they’ve given us a negative rating, that’s what we understood from the media. And because of scoring us down our overall score fell short by 0.27 only on a scale of 100 from Dalmia Bharat’s bid. If the difference was so small, shouldn’t they call both the bidders to maximise the value?
Atul Daga, CFO, UltraTech

Watch the full interview here.

What prompted you whilst you were a part of the resolution process, and you were a bidder on that, to sign this side agreement with the promoters of Binani Cement?

I don’t like the word side deal. We had put in a bid of Rs 7,266 crore to the resolution professional and lenders which was available on record to them when the bid went for voting. Unfortunately, they decided not to go for our bid and go for a significantly lower bid.

Subsequently we have filed our bid with the NCLT also. This became information in public domain. When the promoters Binani Industries saw the higher offer available, they approached us sometime last week about whether we were interested in buying stake in a bilateral deal. Because they would get a better value for their company. Why should their company be undervalued? We accepted their offer, and we offered the same amount of money as we did to the lenders. We are willing to buy the company, provided they are able to get the company out of the IBC process.

Our offer remains the same as we have made to the lenders. There’s no side deal here.

On what basis are you claiming that your bid was better than Damia Bharat’s?

This is our point of grievance and bitterness, that the RP didn’t disclose anything to us except an email saying that we were not the highest bidder. We have been asking them right from day one to share the evaluation criteria and the process by which they’ve scored us.

Unfortunately they’ve refused to share any information and that’s why we filed a petition at the NCLT about the lack of transparency shown by the professional. Our bid is for Rs 7,266 crore as against Dalmia Bharat’s Rs 6,350 crore. Clearly a significant difference.

The evaluation criteria that the RP has laid down was on quantitative and qualitative parameters. On the qualitative parameters there are several elements which clearly put Ultratech way above any other cement players in the country.

Whether it is debt-to-equity ratio, whether it is the net worth of the company, or turnaround capability, we are far higher than any cement player in the country. There was one issue about the CCI. RP in their own wisdom assumed that Ultratech will not get CCI approval for this transaction. They don’t have a clue of how to evaluate a CCI proposal. They haven’t called for any information that’s required to understand competition and how things work.

On their own subjective analysis, they’ve given us a negative rating, that’s what we understood from the media. And because they scoring us down our overall score fell short by 0.27 only, on a scale of 100 from Dalmia Bharat’s bid. If the difference was so small, shouldn’t they call both the bidders to maximise the value.

At the time the bid was closed. You were below Dalmia Bharat, given the facts.

That is on the absolute amount. That is where the scoring criteria comes in.

Have you received any communication from the committee of creditors, telling you that it was this issue regarding the CCI which prompted them to pick Dalmia Bharat’s bid over yours?

There was no official communication, but the lenders have gone to the media and spoken about it. Just because an absolute amount is higher, doesn’t mean that the quality of the second bid is inferior.

I’m trying to establish a fact metric here, that quantitatively your bid was lower. Your approaching the NCLT was a fair thing to do. But why would you parallely jeopardise the entire insolvency process? By choosing to do, what I call a side transaction or alternative transaction, because you have now signed an alternative transaction outside the process, I’m trying to understand your strategy here.

You cannot take away the constitutional right of an individual in the country to own property. Binani Industries is still the rightful owner of Binani Cement. What lenders have got is the right to recover their dues. That’s it. They don’t decide the ownership.

The owners have realised that they’re not getting full value for their asset, and that’s why they have approached us. We are not changing our bid. The bid that we filed with NCLT is the same amount we offered to Binani Industries, provided they are able to get Binani Cement out of the insolvency proceedings. I don’t think there is anything wrong with that.

All of this seems like this is going to lead to further litigation?

I don’t know why it will go into further litigation. I am sure the NCLT will understand the follies being created by the RP – lack of transparency, subjectivity that is being put in the process. They should’ve told us upfront that there is no qualitative parameter to be used for evaluating the bid.

Ultratech is a AAA-rated company while Dalmia Bharat is AA or AA-, certainly not AAA. Our net worth is Rs 25,000 crore while Dalmia Bharat is less than Rs 10,000 crore. Another criteria was the capability to turn around assets. Out of our 90 million tonnes, more than 40 million tonnes is through acquisitions. We turned around those assets. Nobody in the country has the capability or has shown the prowess to turn around assets on such a large scale.

We clearly know that a bid which is lower in amount can be superior in quality and still be the highest bidder.

Could you not have waited for the NCLT to take it up in the proper manner, as opposed to striking an alternative transaction? Don’t you think you’ve jeopardised your chance of rightfully seeking redress to your query by doing this alternative transaction and thereby colouring the entire situation?

No, I don’t think so. If you look at Section 60(5) of the IBC, it clearly allows, NCLT to call off an insolvency proceeding, provided the corporate debtor has shown the ability to pay off all his debt.

That is what Binani Industries has done. I don’t see what’s wrong with what the promoters are doing in wanting to realise better value for their asset. And if they have approached us, I am not doing a side deal. Our offer is visible to the public at large, it’s an official statement made to NCLT on record. This is a number which is available. Binani Industries has asked us to sign a deal with them, to buy their equity stake. There’s nothing wrong in that.

If at all, the lenders were to establish that the debt is above Rs 8,000 crore, your agreement with Binani is for Rs 7,266 crore. Are you in a position to enhance that?

We have gone by the values disclosed by the resolution professional. On that basis we have done the evaluation of the asset. So unless we know any further, we won’t be able to comment on that.

But if they claim so, would you be inclined to increase your bid?

This is a hypothetical situation. I don’t think I will be able to offer any guidance on that. Suppose there is a debt, I don’t mind taking that debt. This again then casts a doubt on the way the process has been run.

You are willing to pursue this all the way up to the Supreme Court if required?

Because we are seeking justice on what is a transparent process. IBC is an evolving legal framework, and it is needs to be foolproof. The way this has been handled, clearly it is clouded in secrecy.

Do you not know that if this goes into protracted litigation the value of the asset will get impacted?

It is an operating asset. I don’t know how long it will take. If at all it goes into litigation, I’m unable to comment on that.