June 07, 2011

Rashtriya Ispat Nigam Limited ( RINL ) - Update by Saumin Patel

State-run Rashtriya Ispat Nigam Ltd, or RINL, which operates Vizag Steel Plant , has revived talks to acquire Orissa-based Neelachal Ispat Nigam , ahead of a proposed expansion programme, as the acquisition would partly meet Vizag Steel's increased requirement of iron ore.

The unlisted RINL is negotiating with state-owned MMTC for its 47% equity stake in Neelachal Ispat and expects the transaction to be concluded in the Rs 800 crore to Rs 1,000 crore range, according to a senior company official.

"We have had a strategic partnership with Neelachal Ispat and acquiring it is part of the various steps that we've planned to ramp up capacity," said RINL chairman P K Bishnoi . "The negotiations have been continuing for some time but we have revived the talks as we have decided to meet our targets," he added.

RINL has outlined major borrowing plans, of up to Rs 22,500 crore, to finance its phased expansion programme to reach 20 million tonnes by 2020. It is currently close to making 6.3 million tonnes of construction grade steel a year.

The Vizag-based steelmaker now sources iron ore from NMDC through quarterly contracts. But once it raises capacity from 6.3 to 11 million tonnes, its consumption of iron ore would go up to 16-17 million tonnes. Neelachal Ispat has a captive mine at Koida with 110 million tonnes of iron ore reserve. "It has also applied for mines adjacent to regions where we have applied. That place is also close to the mines owned by our unit, Bird Group. So there is synergy in such an acquisition," said Bishnoi.

MMTC owns slightly more than 47% in Orissa-based Neelachal Ispat, while the Orissa government through the Industrial Promotion and Investment Corp and Orissa Mining Corp owns about 26%. Consultant Mecon also has minority interest in Neelachal. The company has a debt of Rs 1,700 crore on its books.

If successful, this would be the second acquisition for RINL in a year. In January, RINL acquired another Orissa-based, unlisted resources company, Bird Group, for Rs 360 crore. This company has iron ore mines with reserves of 200 million tonnes.

State-run RINL, which could divest stake in an initial public offer once the government decides on the timing, is also exploring options of bringing in SAIL and power major Bhel as equity partners. "We need to raise about Rs 9,500 crore in addition to the debt part. This will be done through a combination of IPO , and strategic partnerships with SAIL and Bhel," said Bishnoi.

The plan to rope in SAIL and Bhel would be to support the foray into value-added steel, including products for making oil pipelines and transformers.

RINL is one of the five state-owned firms that teamed up to form ICVL to scout for coal assets overseas. Since RINL is not integrated like SAIL and Tata Steel , it has to look for acquisition opportunities. "Coal is another asset that we have to own. We currently need 300,000 tonnes a month which will go up once the expansion is done," said finance director P Madhusudan .

ICVL is looking for coal assets in Afghanistan, Mongolia, Canada and Australia and expects steep valuations of mines to correct soon. "The market also predicts that coal prices will come down to $170-180 (per tonne) levels in the long term," said Bishnoi. Currently, coal is priced at $330 a tonne and is expected to come down to 280

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