Binani Cements

Why the Ultratech counterbid may be an extremely smart move

Even as the consortium of Dalmia Cements and the Piramal Group emerged as the highest bidder for Binani Cements, the story took a fresh turn when Ultratech made a bid to pick up 98.43% stake in Binani Cements at a much higher price of Rs.7266 crore. This is nearly Rs.900 crore more than what the Dalmia consortium supposedly offered. Not surprisingly, Dalmia Cements has taken the case to the NCLAT as being against the spirit of the NCLT and IBC. But it needs to be remembered that Ultratech may have played its cards smartly. Here is why

Still within the NCLT framework

Despite the objections to the contrary, Ultratech has actually operated within the framework of the NCLT. There is a provision for a private deal between the promoter and a higher bidder provided the creditors are fully paid off ahead of the deal. That is something Ultratech has agreed to and is even willing to give a letter of comfort to that effect. The allegations made by Ultratech and Binani point to lack of transparency, and that is something the NCLT may find hard to refute. Neither was the Binani group called for valuation consultations nor was a second round of bidding held for bidders to revise their offers higher. The deal also suits Binani as they get a higher valuation and they can close the deal outside the purview of bankruptcy. In a nutshell, Ultratech has designed a deal which will be meaningful to all.

Get the best price; period

The fundamental question that arises in this case is whether the focus of the NCLT should be on adhering to the letter and the spirit of the IBC or to getting the best price for the creditors. Remember, the IBC itself is evolving and rules framed cannot be taken as sacrosanct. From the overall creditors’ point of view, this deal gives an Rs.900 crore higher valuation to the assets of Binani Cements. Even at these prices the deal makes sense to Ultratech considering that the EV per ton paid is lower than what they paid for Jaypee Cements. The deal looks more lucrative if you consider that Binani comes with ample limestone reserves.

Equitable for creditors…


Not surprisingly, the major objection to the Ultratech deal is coming from lender banks. That is because under NCLT these banks get preference whereas in the Ultratech deal they will be at par with smaller creditors. It will be very hard for the courts or the NCLAT to refute that taking care of the smaller creditors is equally important. By giving that kind of positioning for their deal, Ultratech has put the regulators and the courts on the back foot. The fact is that Ultratech has played its cards smartly. But, this will also be a template for how future auctions must be conducted and why NCLT must focus on getting best valuations, not on banks! ©


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