Livemint: January 12, 2016
New Delhi: The government plans to enact a law that will allow companies that received mining licences without having gone through the auction process to transfer these leases—a move that will make mergers and acquisitions (M&As) easier in the steel cement, and metals sectors.
For instance, this law would help close Birla Corp. Ltd’s purchase of two cement units in Chhattisgarh and Jharkhand from LafargeHolcim Ltd and UltraTech Cement Ltd’s acquisition of two Jaypee Group cement units in Madhya Pradesh by lifting the bar on the transfer of mine leases.
The mines ministry will table the Mines and Minerals (Development and Regulation) (Amendment) Bill, 2016, meant to enable the transfer of mining leases that were originally granted without an auction in the budget session of Parliament.
The changes have been put up on the ministry’s website for comment.
“This development...will help in the conclusion of deals that were held up. It gives acquirers raw material security and scope for its optimal use in end-use plants in the cement, steel and aluminium sectors,” said Kameswara Rao, leader of the energy, utilities and mining practice at PricewaterhouseCoopers India.
The new law will also help banks liquidate such licences if they have been mortgaged to it, the mines ministry said in a statement.
“The transfer provisions will also allow mergers and acquisitions of companies and facilitate ease of doing business. It will also improve profitability and decrease costs of the businesses dependent on supply of mineral ore from captive leases,” said the statement.
Still, given the logjam in Parliament caused by political feuding in the last two sessions, the government may find it difficult to steer the bill through the Rajya Sabha, where the ruling National Democratic Alliance (NDA) is in a minority.
Last year, the government brought in the Mines and Minerals (Development and Regulation) Amendment Bill, 2015, replacing a 1957 legislation, and said mining licences could only be auctioned.
The new law allowed transfer of mines allotted through auctions but was silent on captive mining licences allotted in the past on the basis of recommendations by a screening committee.
That cast a cloud over some deals in the cement business.
In August, Birla Corp. agreed to acquire two cement assets with a combined production capacity of around 5.15 million tonnes (mt) from the local arm of Lafarge for a total enterprise value of Rs.5,000 crore.
The plants were put up for sale after Holcim of Switzerland and France-based Lafarge agreed to a global merger that required the divestment of the assets to meet local competition rules.
In December 2014, UltraTech Cement, an Aditya Birla Group company, agreed to buy two cement plants and related power assets of Jaiprakash Associates Ltd in Madhya Pradesh for Rs.5,400 crore.
The fact that the licences can be transferred makes those deals more attractive.
“This development will help a lot of mines to come into production, which were earlier held up because the original lease holder had difficulties in developing them and could not transfer to others. This would benefit a lot of mines that are at different stages of development. The existing restriction on transfer of mines not allotted through an auction had also led to lenders’ funds getting stuck in projects. The move to allow transfer of mines will speed up consolidation in the industry,” said Kalpana Jain, senior director, Deloitte in India.
An e-mail sent to Birla Corp. and UltraTech Cement late on Monday had not elicited any response till press time. Calls made to Jaypee Group’s spokesperson went unanswered.
The Bharatiya Janata Party-led NDA government introduced the auction process for mines after the allotment of more than 200 coal mines was scrapped by the Supreme Court in September 2014.
The court ruled that the process adopted for allocating the mines was flawed, after a scandal broke out during the previous Congress-led United Progressive Alliance government’s regime over the way coal fields had been allotted.
The Comptroller and Auditor General of India said in a
2012 report that coal mine allocations had caused the exchequer a notional loss of Rs.1.86 trillion.
Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.