June, 09 2005
Essar Steel acquires 2 firms from UK-based Stemcor
Essar Steel on Wednesday announced that it has completed the acquisition of Hy-Grade Pellets (HGPL) and Steel Corporation of Gujarat (SCGL) from Stemcor, UK. Consequently, both companies are now fully owned subsidiaries of Essar Steel.
The acquisition of HGPL and SCGL were completed at a cost of $450m (approximately Rs1950 crore) and funded through equity by way of issuance of compulsorily convertible preference shares (CCPS).
The issue of these instruments has already been approved by shareholders and regulatory authorities, the company release said.
Essar Steel on Wednesday informed the BSE that the company has completed the issue, allotment and dispatch of certificates in respect of 8% CCPS of Rs 350 each aggregating to $450m to the promoters and non-promoters in the ratio of 75:25 . Essar Steel Holdings, Mauritius (Promoters) has been allotted 41,948,523 CCPS while Asia Steel Holdings, Mauritius (Non-Promoters) has been allotted 13,982,841 CCPS.
Each CCPS, unless earlier redeemed by the company, is convertible into 10 equity shares of Rs 10 each fully paid up at a premium of Rs 25 per share at the expiry of 18 months from the date of allotment.
With these acquisitions, Essar Steel becomes a fully integrated steel producer with end-to-end control, over raw materials, processes, technology and finished products.
The Essar steel scrip on Wednesday was up 1.4% to Rs 42.40 The acquisition of HGPL will bring in the benefits of high quality raw material and considerably better yields in steel making.
HGPL operates a 4m tonnes per annum pellet plant at Visakhapatnam which is being further expanded to 7m tonnes. SCGLs acquisition is expected to result in considerable value addition across the entire chain and will give Essar a more diversified product range.
Essar until now has only been a hot rolled coil producer. SCGL will bring cold rolled steel, and galvanised steel to Essars product basket. These products fetch over $ 200 more than hot rolled coils.
The acquisition will bring in 1.2m tonnes of cold rolling capacity into Essar Steel, making it one of Indias largest producers of cold rolled products.
The company has stated that these new products will provide a much wider market penetration capability and offers a hedge against cyclicality in domestic and international markets.
Commenting on the completion of the transaction, Essar Steel MD Prashant Ruia, said We expect that these acquisitions will bring in increased synergy and seamless integration in our operations and help strengthen the company.
We look forward to consolidating our position in the market, especially in the value added segment.
Jindals plan Rs 7,000 cr steel plant in Orissa
Jindal Stainless Ltd (JSL) is set to sign a memorandum of understanding with the Orissa government tomorrow for setting up a 1.6 million tonne integrated steel plant along with a 500 Mw captive power plant at Kalinga Nagar in Jajpur district of Orissa.
The project, to be set up in phases, is estimated to cost about Rs 7,000 crore. The company, meanwhile, has acquired 1,240 acres for the steel project and 300 acres for an ash pond of the proposed power plant at Kalinga Nagar.
According to Ratan Jindal, vice-chairman and managing director, JSL, this will be the largest integrated stainless steel project in south Asia. With the implementation of the project, JSL will move up to acquire a position among the top 10 stainless steel producers in the world.
The project is being set up in two phases. The first phase comprises establishment of 240,000 tonnes of ferrochrome, 40,000 tonnes of silicomanganese, 50,000 tonnes of ferromanganese capacities, blast furnace to produce 5.25 lakh tonnes of hot metal, 8 lakh tonne per annum stainless steel melting shop and eight lakh tonne slab caster machine apart from the facility to produce 25 MW captive power from waste heat of blast furnace and ferro chrome furnace. The first phase is estimated to cost Rs 1146 crore.
While the first two ferrochrome furnaces with installed capacities of 80,000 tonnes per annum are slated to go on stream by middle of next year, the rest components are scheduled to be completed by March 2007.
Similarly, the second phase comprises of setting up of additional 2.4 lakh tonnes of ferro chrome, 20,000 tonnes of silico manganese and 50,000 tonnes of ferro manganese capacities, 5.25 lakh tonnes of hot metal, hot strip mill of one lakh tonne and rolling mill to produce 2.5 lakh tonnes of hot rolled coil and 6.25 lakh tonnes of cold rolled coils. The second phase, scheduled to be completed by March 2009, is estimated to cost Rs 3618 crore.
This apart, the company intends to set up a 500 MW coal fired captive power plant in the complex at an estimated cost of Rs 2128 crore. While the first unit of 125 MW of the CPP will be built by March 2007, the next three units of equal capacity are proposed to come up by March 2009.
The company, on annual basis, will require 22 lakh tonnes of iron ore, 12.79 lakh tonnes of chrome ore, 11.19 lakh tonnes of lime stone and dolomite, 4.68 lakh tonnes of manganese and 24.84 lakh tonnes of non-coking coal to feed the stainless steel plant. It has applied to the state government for allotment of mining lease for all these minerals to ensure raw material linkage to the project.
Merger Mania in steel grips RINL, SAIL weigh move
The PSU merger mania is spreading to the steel sector as well. A PMO initiated proposal is exploring the plausible merger of Rastriya Ispat Nigam Limited (RINL) with Steel Authority of India Limited (SAIL), even as the Cabinet nod for the merger iof Indian Iron & Steel Company (IISCO) with SAIL is still awaited.
While sources in the ministry of steel told ET that the proposal was in very preliminary stages, there is an unmistakable UPA stamp to the idea. A similar concept had surfaced in the oil & banking sectors too. The government thinks it would be in the interest of the public sector to create giant entities that can hold their own face of competition from the foreign and private sector source said.
This comes at a time when RINL popularly known as Vizag Steel Plant has posted profits of Rs 2000 crore in FY 2004-05 and is awaiting Central nod for a mega expansion plan of Rs 9529 crore.
Sources in RINL said, We have not been asked for any opinion on the matter as yet. The merger is a matter for the government to decide. We expect to be able to pursue the expansion plan without any distortions or delay due to this talk of merger.
Citing Prime Minister Manamohan Singhs often repeated commitment to help globalization of navratanas and public sector enterprises in strategic sectors, the source said There are certain competencies that come within a smaller, manageable size of operations. Large behemoths may bring benefits, but there are downfalls too. Such as layoffs.
The fear of loss of employment also stems from the PMs open statement that the public sector would not be promoted as a social security mechanism to provide employment.
Meanwhile, RINLs plans for expansion envisage an increase in the total capacity from 3.5 million tonnes per annum to 7 MTPA by 2007-8. The planning commission has okayed the proposal but there is speculation that PIB clearance and Cabinet nod may take a while to come, especially in the light of merger proposal.
It all started a month ago when the ministry of steel was asked to prepare a blueprint for the merger by PMO when there was a scare about the paucity of raw materials. RINL had than mulled a joint venture with National Mineral Development Corporation to access iron ore.. But with the talk of merger surfacing, local opposition is building up in Andhra Pradesh with the Chief Minister publicly denouncing the move.
Top state government officials and some politicians have also been engaging with the PMO top voice their protest. Ironically, the Vizag Steel Plant was under SAIL some years ago, but after the latter pulled out, RINL was incorporated to run the plant.
Andhra resents RINL merger
Andhra Pradesh has opposed the Union governments plan to merge Rashtriya Ispat Nigam (RINL) with Steel Authority of India (SAIL).
Senior state government officials recently met officials at the Centre and voiced their apprehensions about the fate of RINL, or Vizag Steel as it is called, after its merger with SAIL.
However, steel ministry officials said the central government would try to convince the state that the merger would be beneficial for RINL in the long run because of the cyclical nature of steel demand. If Vizag Steel is merged with SAIL, it will have access to the latters mineral base, while SAIL will be able to export from Vizag itself.
The next steel price meltdown will again see standalone steel plants going down. Worldwide, only big chains of steel mills have survived the cyclical movements in the industry. The days of pricing controls and duty barriers are over, we are open to the global markets ... we have to plan ahead to keep our steel industry in good shape ahead of the next downswing, an official said.
Global steel prices are known to move in a cyclical fashion every five to seven years. During the last price downswing many standalone steel mills in Europe, the US and other parts of the globe had to either shut shop or sell out. Steel baron L. N. Mitttal had bought out many of the ailing mills for throw-away prices at that time.
Ministry officials added that the Centre would explore the possibility of merging other state-run steel units with SAIL.
The government wants RINL as well as Indian Iron & Steel Company (IISCO) to be merged with SAIL to create a huge steel behemoth, capable of taking on world majors.
The new entity, if created, would have a combined crude steel production capacity of 16.2 million tonnes (MT).
Iron ore prices may rise 3 fold if benchmarked to global levels
The cost of iron ore for local steel manufactures may increase three fold. The domestic iron ore sale prices may soon be benchmarked to international prices if the government accepts the recommendations of a committee headed by P Ganeshan, chairman of Kudremukh Iron Ore Company (KIOCL).
NMDC has been selling ore to domestic steel manufacturers at rates lower than international prices. NMDCs ore fetches Rs 450 a tonne, while the landed price of ore is estimated at about $40 per tonne or Rs1720.
The government has not decided on a course of action. NMDC chairman Ramesh Kumar could not be contacted but a company official said that it is too early to say anything on the prices of iron ore. The implementation of the committees suggestions by NMDC will erode the margins of steel manufacturers who do not captive source of iron ore. These steel majors include Rastriya Ispat Nigam, Ispat Industries, Essar Steel and Jindal Visjaynagar Steel (JVSL), besides many small and large sponge iron manufacturers. Steel Authority of India (SAIL) and Tata Steel have captive iron ore mines.
Indian steel producers fear that the new order may be implemented with retrospective effect from August 2004. An industry official argued that fixing ore prices at international rates is unjustified as there is enough iron ore in the country and imports would be unviable.
Industry officials have also questioned the legality of appointing a committee for determining the selling price of a commodity. Being a mini ratna company, NMDC board has the authority to decide on pricing of its products and capital expenditure, said an official.
Industry sources said that NMDC already has long term contracts with all major steel manufacturers. Officials said that the ministry should allow NMDC to honour these contracts. These contracts have provisions which allow NMDC to get the price variations seeen in the international iron ore prices.
For example, if the base price price for 2004-05 was Rs450 per tonne, a 71.5% increase in the international prices will allow NMDC to charge Rs 771 per tonne of iron ore. However if the committee recommendations are accepted, the price hike will be calculated on landed prices of Rs1720.
International benchmark iron ore prices have been increased by 71.5% in April. However with the steel prices falling over the last two months in the international market, iron ore prices are also being renegotiated at lower levels. NMDC, however has not taken a decision on what its prices would be for the ore it supplies to domestic steel mills. A senior NMDC officials said that it will be decided in about a month.
