some good news on ISPAT.......
STEMCOR wants to buy out pellet plant, hike equity beyond 10%.
Stemcor, which last month agreed to pick up 10 per cent in Ispat
Industries, is now hungry for more. The Indian arm of one of the
worlds largest steel trading companies has sent feelers to Ispat to
buy it out entirely from its 3 million tonne per annum pellet plant.
The final negotiations now underway may also see UK-based Stemcor
hiking its stake in Ispat beyond 10 per cent. Ispat is promoted by
Vinod and Pramod Mittal, brothers of the world’s largest steel
maker, LN Mittal.
"Till now we have signed a shareholders’ agreement with Ispat
only for the coke oven battery. Discussions on all other counts (pellet
plant and power plant), including the stake sale in the parent
company, are underway. We have only signed a memorandum of
understanding. The full clarity will emerge in a month’s time,"
Stemcor India Managing Director Mathew Stock said.
On September 19, cash-strapped Ispat Industries, which has a debt of
around Rs 6,700 crore on its books, announced a strategic cooperation
agreement with Stemcor. As part of the deal, Ispat agreed
to prefentially allot 10 per cent equity to Stemcor for Rs 250-300
crore. Apart from equity, Stemcor was to also help Ispat build a one
million-tonne per annum coke oven plant, a pellet plant and a 110-Mw
power plant at Dolvi in Maharastra.
In all the proposed joint ventures, Stemcor was to hold 74 per cent
equity, with Ispat holding the residual 26 per cent. The combined
investments were to exceed Rs 3,000 crore.
But Stemcor is now keen to buy out Ispat entirely from its pellet plant
project and has made its intention known. "We would like to have 100
per cent stake in the pellet project. There is a lot of demand in the
western region for pellets and there are no plants. So we see this as a
great opportunity. Since Ispat’s contribution in the pellet plant is
only the land, we are in talks with it to buy the land or to lease it for a
long term." said Stock.
According to Stock, Ispat's own requirement for pellets is 2 million
tonne per annum. The additional million tonne can be sold to third
party customers who will guarantee offtake.
Stemcor is already setting up a four million tonne pellet plant in
Orissa with an investment of close to Rs 1,500 crore. The plant will be
operational next month. The raw material for the Orissa project will
come from its own mines in the state. The extra supplies can be
diverted to the Ispat plant in Maharastra, if required. "If we feed our
own iron ore in the plant then we would like to capture the full value
of that," Stock said. The objective for Stemcor is to have a plant each
in the east and the west coast.
Pellet pricing will also be crucial for the deal. "If we use 100 per cent
of our own iron ore then we expect Ispat to pay us the market rate
for the pellets," said Stock. But with Ispat having its own iron ore
supply deal with NMDC, Stock also made it clear that if Ispat's ore
supply is used in the proposed pellet plant then it will get a negotiated
price that is lower than market rate.
Apart from the pellet plant, Stock said that the company is also keen
in setting up a three million tone benefication plant next door to add
value to the iron ore that will come out of the pellet unit. The
benefication plant will require an investment of Rs 500-Rs 700 crore.
Ispat Industries Director (finance) Anil Sureka did not comment. He
said, "The deal is still under negotiations and will take 30 to 40 days
more to seal." When asked specifically about Stemcor's intention to
wholly own the pellet plant or raise equity in the company, Sureka
said: "This is news to me."
Sources added the 15 lenders of Ispat Industries, who just a month
back had threatened to induct a strategic player in the company, will
play a crucial role in these final negotiations between Ispat and
Stemcor. As of now, they are not revealing their strategy. A debt
restructuring approved by Ispat's shareholders give them the option
to convert part of their loan into equity and hike their combined stake
to 31 per cent from the current 10.9 per cent in case of a default.
Indian banks like State Bank of India, IDBI and ICICI Bank have a
$1.5 billion exposure to Ispat.
good luck......
uday