The Chennai-based multi-sector $8 billion Shriram Group is all set to break into cement business.
Shriram EPC Ltd., an arm of its engineering group, appears to have inked an agreement with the promoters of Sree Jayajothi Cements Limited for a `significant investment' into the later.
Sree Jayajothi Cements, promoted by T. R. Kannan, belongs to Rajapalayam-based Jayajothi Group, a part of well-known Jayavilas Group.
Shriram EPC is the engineering, procurement and construction contractor of the 3.2 million-tonne state-of-the-art cement plant of Sree Jayajothi at Yanakandala village near Banaganapalli in Kurnool district of Andhra Pradesh. Significantly enough, the entry of Shriram EPC into cement will happen through a conversion of debt into equity. Sree Jayajothi reportedly owes Shriram EPC over Rs.530 crore.
The board of directors of Shriram EPC, at its meeting on February 18, has given its approval for a ‘significant investment' by the company in the equity share capital of Sree Jayajothi Cements through equity/convertible instruments directly or through its associates by converting a part of its existing dues. This will, however, be subject to the approval of shareholders.
T. Shivaraman, Managing Director of Shriram EPC, insisted the debt conversion into equity was being done after much deliberation. The promoters of Sree Jayajothi were looking for investors from Europe for a ‘strategic sale' of their equity. In the wake of the eurozone crisis, however, nothing fructified. “We can't wait indefinitely for getting our dues,” Mr. Shivaraman said. “Shriram EPC had the right to convert a part of the debt into equity. We are now going ahead with that option,” he added. To a query, he merely said, “Shriram EPC will get significant equity stake in Sree Jayajothi.”
The cement plant was running at lower capacity for the last one year or so, he said. Due to working capital constraints, the plant was running at around one million tonnes, he added. He asserted that “it is a good investment for Shriram EPC”. He was confident that it would prove beneficial to Shriram EPC in the long-run. In this context, he pointed out that the cement plant was an integrated one with good mine and logistics linkage. To a question, he said Shriram's move had the backing of the lending banks. He said no major fresh investment would be needed to drive the plant capacity. He also did not rule out the possibility of Shriram looking for a partner should there be a greater value creation through any such strategic deal.