The Hindu Business Line : ACC volumes shoot up on market buzz

ACC has seen huge volumes on the bourses in the past two days on rumours that Gujarat Ambuja Cement Ltd (GACL) is likely to offload its 14.4 per cent stake in the company, held by its subsidiary Ambuja Cement India.

According to the market grapevine, Ambuja Cement India is looking to offload its stake in ACC at a price of Rs 380 with the mandate been given to Kotak Mahindra Bank. The buyers touted in the market include Lafarge and Holder Cement.

The rumours, however, did nothing to boost the stock price of either ACC or GACL. Ambuja Cement India is a 60 per cent subsidiary of Gujarat Ambuja with the remaining 40 per cent held by private equity investors, Government of Singapore and AIG.

While the market remained convinced that a decision on the same would be through by the weekend, company officials when contacted denied any such move.

Even while expressing skepticism about Gujarat Ambuja ever taking such a step, analysts speculated that the stake sale rumour could have its origin in the fact that FIIs in Ambuja Cement India have to be provided an exit option by the end of this year or more specifically by February 21, 2005.

"In what way would the company benefit from a stake sale. If one were to look at the whole picture, it is only because of ACC that GACL has a pan-India presence. The GACL-ACC combine put together have a capacity of 26 million tonnes to 27 m.t. as against 32 m.t. of the Grasim-L&T combine. Besides, offloading ACC's stake to a possible overseas investor, would mean a new player with a sizeable capacity that matches their own but with a much more stronger financial standing.

"The only way they could possibly countermand this would be if they were to come up with a slew of capacities of their own. Which in turn is a very expensive proposition,'' an analyst argued.

The reasoning that Gujarat Ambuja could buy out the private equity investors instead of offloading such a strategic stake was also ruled out as impractical.

"The FIIs have an investment of around Rs 570 crore in Ambuja Cement India. A buy-out would have to be done at fair value or on dollar value of the investment plus interest, which again works out as an expensive proposition,'' an analyst from a reputed broking outfit reasoned.

Thus keeping in mind the exit option factor, analysts speculate that a more probable step would be a reverse merger of Ambuja Cement Eastern with Ambuja Cement India.

"Ambuja Cement India holds a large chunk (almost 94 per cent) of Eastern which is a listed entity. Such a merger would provide the institutional investors an exit route. And in this instance, it is possible that instead of taking the open market route what could follow may be a private placement or an offer for sale,'' an analyst reasoned.

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