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Tata Chemicals to sell urea business to Yara

August 10, 2016
Energy & Chemical Value Chain

Tata Group-controlled Tata Chemicals Ltd will sell its business of sale and distribution of urea and customised fertilizers manufactured at Babrala, Uttar Pradesh, to Yara Fertilisers India Pvt Ltd for Rs.2,670 crore.

Tata Chemicals will continue to own the brands Paras, TKS and Daksha. This transaction does not include specialty products and complex fertilizers.

The urea business along with the assets, liabilities, contracts, deeds etc shall be transferred and vested with Yara India on a slump sale basis, Tata Chemicals said on Wednesday.

Slump sale means the transfer of one or more undertakings as a result of the sale for a lump-sum consideration without values being assigned to individual assets and liabilities.

Yara India is a unit of Yara International ASA, which is founded in 1905 to solve emerging famine in Europe. At present, Yara has a worldwide presence, with close to 13,000 employees and sales to more than 150 countries.

The divestment of the Urea business by Tata Chemicals will unlock value for the company, strengthen its balance sheet and will help to pursue growth potentials and opportunities in line with its strategic directions.

The company has a consolidated debt of Rs.8,694.25 crore as on 31 March 2016.

“This process of divestment by Tata Chemicals is in line with the strategic direction of the company to continue to strengthen the fertilizer businesses by partnerships and/or transfer of ownership to world class companies. The urea business will now have the benefit of international network of Yara and its global expertise,” Tata Chemicals said.

R. Mukundan, managing director, Tata Chemicals, said that this marks a decisive move on the part of the company to move forward on its strategy to build consumer business while maintaining leadership in inorganic chemicals business and focusing the farm business through its subsidiary Rallis Ltd and Metahelix.

Tata Chemicals was supported by Kotak Investment Banking and JM Financial Institutional Securities Ltd as transaction advisors, Deloitte Touche Tohmatsu India LLP as Financial & Tax Advisor and AZB & Partners as Legal Advisor for this deal.

Yara India said it will buy Tata Chemicals’ Babrala urea plant and distribution business in Uttar Pradesh for Rs.2,670 on a debt and cash free basis, including normalized net working capital.

“This acquisition represents another significant step in our growth strategy, creating an integrated position in the world’s second-largest fertilizer market. India has strong population growth and increasing living standards, and significant potential to improve agricultural productivity,” said Svein Tore Holsether, president and chief executive officer of Yara.

The plant has an annual production of 0.7 million tonne ammonia and 1.2 million tonne urea, and generated revenues and EBITDA (earnings before interest, tax, depreciation and amortisation) of $350 million and $35 million, respectively, in the financial year ended 31 March 2016.

The plant was commissioned in 1994.

Yara has operated in India since the 1990s, focusing in recent years on premium product sales in the west and south of the country, delivering strong volume growth and margins well above Yara’s average for the region.

The agreement will be subject to regulatory approvals and sanctioning by the relevant courts in India, a process which is expected to take 9-12 months after which closing of the transaction can take place.

Tata Chemicals sale comes at a time when the south west monsoon picked up vigorously from the third week of June after a delayed onset.

According to the Reserve Bank of India (RBI), by early this month, the cumulative rainfall was 3% higher than the long period average, with more than 80% of the country receiving normal to excess precipitation.

Kharif sowing strengthened after a lacklustre start, particularly with respect to pulses.

Barring cotton, jute and mesta, sowing of all crops is currently above last year’s acreage. These developments engender greater confidence about the near-term outlook for value added in agriculture. The target for kharif production set by the Ministry of Agriculture appears within reach, said RBI.

This year’s monsoon comes in the backdrop of two back-to-back droughts caused by the worst El Niño, the weather phenomenon which causes warming of the Pacific Ocean, impacting the formation of monsoon clouds.

By P. R. Sanjai

Source: Live Mint

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