Tata Chemicals has entered into an agreement with Norwegian company Yara International ASA to sell its Babrala urea plant and distribution business in Uttar Pradesh for $400 million (Rs.2,670 crore).
The company was trying to exit this business for nearly two years due to delayed payment of subsidies. The proceeds will be invested in other growing businesses of the company its Managing Director R. Mukundan said.
This is the first time that Yara is investing money in an asset in India though it has been operating in India through its Indian subsidiary since 2011. It sold specialised fertiliser worth Rs.180 crore in Maharashtra and South Indian markets last year.
“This acquisition represents another significant step in our growth strategy, creating an integrated position in the world’s second-largest fertiliser market,” said Svein Tore Holsether, President and Chief Executive Officer, Yara International.
“India has strong population growth and increasing living standards, and significant potential to improve agricultural productivity.”
The plant has an annual production of 0.7 million tonnes ammonia and 1.2 million tonnes urea and generated revenues and EBITDA of $350 million and $35 million respectively in the financial year ended 31 March 2016.
The plant was commissioned in 1994 and is one of the most energy efficient plants in India, with energy efficiency on a par with Yara’s best plants.
“We are impressed with the world-class operations we have seen in Babrala. The workforce is committed to high HESQ standards and has a solid safety track record. This well-operated plant and its highly skilled employees will make an excellent addition to Yara’s global production system,” Mr. Holsether said.
“Our growth in India can be further accelerated with this acquisition, creating a larger market footprint for Yara and enabling increased premium product sales in particular,” said Terje Knutsen, SVP and Head of Yara Crop Nutrition. “We will place great emphasis on successful integration of the operations, and will put in place an integration team consisting of highly experienced TCL and Yara employees, the latter from both our existing India operations and our regional management.”
The agreement is subject to regulatory approvals and sanctioning by the relevant courts in India, a process which is expected to take 9 to12 months after which closing of the transaction can take place.
As per the agreement, Yara would get receivables of more than Rs.1, 500 crore towards pending subsidy payment by the government. It will acquire all the plant and machinery at Babrala and retain the entire workforce of 425 people. Tata Chemicals’ Haldia plant and brands are not part of this deal.