Binani Cement has been a trophy for the major players in the Indian cement industry for over a year now. Since 25th July’17, the day the National Company Law Appellate Tribunal (NCLAT/NCLT) processed the application of insolvency against Binani Cements, cement manufacturers both domestic and from abroad have jumped to their feet to grab this opportunity. The closed-bidding process that followed as a part of the Insolvency and Bankruptcy Code 2016 (IBC), saw participation of major cement players including the Rajputana Properties, a WoS of Dalmia Bharat Cement Ltd. (Dalmia) backed by the Piramal Bain Resurgence Fund, the Aditya Birla Group’s Ultratech Cement (Ultratech), Rakesh Jhunjhunwala and Radhakishan Damani and Heidelberg & True-North Ramco Cement. 
Binani Cements has a strong presence in North and Western India as well as in the Middle-East. It has mine reserves near its plant locations which, if acquired by domestic manufacturers, will drastically reduce their costs. North India is scarce in limestone, except for certain places in Rajasthan. Binani owns some of the mines in this area, giving it a strategic advantage over others. The entity has an 11.25m ton annual global capacity with 6.25m tonnes being domestically produced.  No wonder with so many strategically held resources, companies are showing interest in the takeover. Binani Cement has an accumulated debt of about Rs 6500 crore borrowed from various secured and unsecured lenders. Edelweiss ARC (Rs 2673 cr), Bank of Baroda (Rs 410 cr), SBI (Rs 323 cr) and Canara Bank (Rs. 320 cr) are its secured lenders while IDBI ( Rs 1567 cr), EXIM Bank (Rs 617 cr) and Bank of Baroda- London Branch (Rs. 175 cr) are its unsecured lenders.
The Acquisition War
The bidding process ended on 12th Feb’18 and Dalmia’s offer was declared the highest on the 27th of Feb. It was an offer of Rs 6350 crores with a 25% equity for lenders. It had outbid Ultratech Cement’s offer by a margin of Rs 200 crores. Post this, Ultratech Cement had moved the NCLT challenging its decision. On 19th March’18, Ultratech offered the Letter of Comfort and proposed to acquire 98.43% stake for Rs 7226 crores. The IBC states that the motive of any resolution process should be to extract the highest possible value for the stressed company. In the Omkara Infrastructure Pvt. Ltd. and Simplex Credit & Industries Vs. Divya Jyoti Sponge Iron Pvt. Ltd., the NCLT (Kolkata) did not recognize any bids post their closure as value for the stressed company wouldn’t have changed. However, this wasn’t followed in the Binani Case. IBC stated that Ultratech’s bid will be considered valid as its offer was significantly higher than the Dalmia offer, following the highest value principle. It’s startling to see that the IBC is only about 2 years old and still the code has been the base for NCLT to pass two entirely opposing judgments.  This may seem misaligned from the very foundation of the bidding process held in February. However, by accepting Ultratech Cement latest revised offer of Rs 7990 crores, the lenders were recovering more than 100% of their debt. Ultratech contended that it will cover the interest of the lenders from the day Binani was admitted to the Bankruptcy Code. Moreover, the Aditya Birla Group is a much bigger fish compared to Dalmia and banks, who are the principal lenders here, are hesitant about annoying the Birlas by rejecting their offer. With time and with the rise in bid amounts, almost all the lenders wanted to take up the Birla offer and set aside Dalmia’s offer which they had previously accepted.
But the law doesn’t permit this transition easily. For this change to happen, the Supreme Court must give its assent. The Insolvency and Bankruptcy Code 2016 (IBC) suggested that NCLT should also be given the power to halt resolution proceedings if the move is supported by at least 90% of the lenders (as was in this case) and settle the deal outside courts.  But, even enforcing this required the nod from the Supreme Court which the court hadn’t provided. As a result, the case was dragged on dates-after-dates. Dalmia is a relatively old cement manufacturer in the industry which has strong roots in Eastern and Southern India. Binani Cement, on the other hand, has a significant presence in Northern and Western India. Dalmia acquiring Binani is a wonderful proposition for stakeholders of both the companies.  After Dalmia won the bid, it secured the approval of a majority of creditors in the Committee of Creditors in record 233 days. Also, the Competition Commission of India gave its record approval in 13 days. The Binani Cement’s case would have set a precedence about the changes in the ease of doing business aspect in India by giving the green signal in record durations.  It would have made it easier for stressed companies and lenders of these stressed companies to get resolutions faster. But the prolonged bid-war has made matters worse not only for Binani but also for all other stressed companies in the future.The JWS Cement had also planned to go full swing on the takeover for which it had joined hands with a global private equity firm to take part in the bidding process. It would have kept the entity in separate books of accounts and gradually brought them in their own books after its turnaround. JSW has plans to set up a clinkerisation unit in Fujairah, UAE. This goal would have gained impetus with Binani’s 5 million ton grinding unit in Dubai.  Yadupati Singhania, chairman of JK Cement feels that consolidation in the industry is actually much needed to do away with the problem of 25% excess supply with respect to demand in the industry. This excess supply not only leads to subdued profitability and poor capacity utilization across companies but also results in incorrect prices in the market. He also, feels that with the center elections approaching, the government is likely to undertake numerous infrastructural projects raising the demand for cement for the entire industry. 
As per the Insolvency and Bankruptcy Code 2016 (IBC), the resolution plan has to be approved within a span of 180 to 270 days. However, this hasn’t been the case with Binani Cements. It’s been over a year and no resolution plan has not be singled out.  IBC was passed to help stressed companies get a resolution plan sooner but with big boys of the industry unwilling to give up, it is hard to predict when this war will end. The only beneficiary in this debacle has been the lenders who feel assured of their increasing interest with each passing day.
Written by Tarang Bansal
Tarang is a PGP student (2018-20) at IIM Ahmedabad
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