When the board of city-based Kesoram Industries Ltd meets on Thursday to discuss ways to repay high-cost debt, one of the options could be an all-share deal with UltraTech Cement, India’s largest cement producer.

Cement maker Kesoram, the flagship of Basant Kumar Birla Group, is spearheaded by Manjushree Khaitan, daughter of late B.K. Birla.

If the deal with UltraTech is approved by the board, Kumar Mangalam Birla, the grandson of B.K Babu, as he was affectionately called, will be in command of the family silver.

Kumar Birla, chairman of AV Birla Group to which UltraTech belongs, is also a promoter shareholder in Kesoram, which has two cement plants in Telangana and Karnataka.

Entities controlled by the Kumar Birla family — Pilani Investments and Industries Corporation Ltd and Century Textiles & Industries Ltd — are qualified as promoter groups, holding close to 15 per cent in Kesoram.

The deal, if picked by the board, may involve UltraTech paying for Kesoram assets by issuing fresh shares instead of stumping up cash which could unnecessarily strain the balance sheet. Kesoram shareholders will then get UltraTech shares as part of the deal.

As part of the proposed transaction, UltraTech will also pay off the high-cost debt which is sitting on the balance sheet of Kesoram as NCDs.

The number of UltraTech shares that a Kesoram shareholder will get is going to depend on the enterprise valuation of the cement business, after factoring in the Rs 1,700-crore odd debt.

While the asset sale is one option on the table, the management could consider a rights issue whereby Kumar-controlled entities would subscribe to the promoters’ part. The Kesoram script has been on fire, rising 65 per cent in the last month.

The stock was locked in the upper circuit on Tuesday, following the notice of the board meeting, ending at Rs 126.19 on the BSE. Cement contributed to 98 per cent of Kesoram’s Rs 3,606cr turnover in FY23, with the balance from rayon, transparent paper and chemicals.

Tumultuous past

The B.K. Birla flagship has been deep in the red despite several attempts over the years by the Khaitan-led management to tide over the crisis, with the tacit backing of nephew Kumar Mangalam.

As part of the restructuring exercise, it first sold the Haridwar tyre plant to JK Tyre in 2015.

Later, it demerged the Birla Tyre division to a separate company and listed it on the bourses.

In the process, it apportioned a large amount of debt from the Kesoram balance sheet to the tyre company.

However, Birla Tyre slipped into insolvency. Calcutta-based Himadri Speciality Chemicals took over Birla Tyre as part of a corporate insolvency resolution process last month.

Despite the restructuring efforts and periodic investment by the promoters into the company, the ballooning debt in the aftermath of the Covid pandemic became unmanageable, prompting the management to stitch up an innovative plan to avert default.

It issued NCDs to a clutch of financial institutions such as Goldman Sachs and Edelweiss to raise debt at 19-20 per cent interest rates and paid off the bank loans with the fund.

The plan thereafter was to progressively raise debt again from Indian banks at a lower rate and pay off the NCD holders to control the interest outgo. While the performance of the cement business did improve with the liquidity raised through NCD, it was not enough to carry out another round of refinancing. The finance cost in FY23 was about Rs 422 crore.

Kumar connection

While Manjushree Khaitan, the younger daughter of B.K. Birla, took control of the management of Kesoram after her father’s demise, the patriarch had always carved out a role for Kumar in the flagship of his empire.

During his lifetime, he had mentioned several times that Kumar Birla would eventually inherit Kesoram or jointly manage with Khaitan.

If the deal with UltraTech takes place, it will help Kumar Birla to consolidate his sprawling cement business in the face of strong challenge from Adani Group, the new owners of ACC and Ambuja.

UltraTech has about 135 million tonnes of cement capacity compared with 10mt of Kesoram.