Tata Steel Arm To Buy Govt Stake In Neelachal Ispat For Rs 12,100 Crore

In its second acquisition of a public sector undertaking (PSU) within a week, the Tata group has bagged a majority stake in Neelachal Ispat Nigam (NINL), giving a strong push to the government’s privatisation drive, showcasing the interest of marquee private sector investors in the Centre’s assets.

The Alternate Mechanism, comprising Union Ministers Nitin Gadkari, Nirmala Sitharaman, and Piyush Goyal, approved the divestment of the 93.7 per cent stake held in NINL by four central PSUs and two companies of the Odisha government, to Tata Steel Long Products (TSLP) at an enterprise value of Rs 12,100 crore.

The reserve price for the PSU was set at Rs 5,616.97 crore, and approved by the Cabinet Secretary-headed Core Group of Secretaries on Divestment. The Tata Group arm beat bids submitted by two other bidders, including a consortium of Jindal Steel & Power and Nalwa Steel and Power, and JSW Steel.

As the Centre does not directly own any stake in NINL, the sale will not lead to any divestment receipts for the exchequer.

Tata Steel owns a 74.91 per cent stake in Tata Steel Long Products. The buyer will pay 10 per cent of the bid amount which will be deposited in an escrow account. Based on the bidders’ demand, the government amended the earlier clause of depositing 100 per cent of the bid amount on the date of execution.

On the closure date of the transaction, shares will be transferred to the new buyer and the balance will be utilised in accordance with the waterfall agreement signed among the selling shareholders. Part-sale proceeds would be infused into the company to the extent of the liabilities, which will be set-off and the balance in the escrow account will be given to selling shareholders proportional to their shareholding.

According to the preliminary information memorandum, the amount paid by the bidder would be used towards settling labour dues, operational creditors, commercial lender debt, promoter debt and purchasing of 93.7% of shareholding of NINL.

According to a statement, the Letter of Intent (LoI) is being issued to Tata Steel Long Products, inviting it to sign the share purchase agreement.

“NINL represents a critical and strategic acquisition for TSLP with around one million tonne (mt) per annum of steelmaking capacity, 2,500 acres of land for future growth and iron ore reserves of around 100 mt. Tata Steel lost no time in outlining an expansion plan. The acquisition of NINL provides a significant opportunity for Tata Steel to not only restart the 1 mt per annum steel plant expeditiously but also begin work immediately to build a 4.5 mt per annum state-of-the-art long products complex in the next few years, and further expand it to 10 million tonne by around 2030,” the company said.

Tata Steel said that the total consideration of Rs 12,100 crore reflects the enterprise value (including all recorded liabilities) as part of the acquisition of 93.7 per cent equity stake in NINL.

The company said that the acquisition was being financed through a combination of internal accruals and bridge loans which were expected to be paid down through internal generation of Tata Steel over the next few quarters.

“The transaction is scheduled for closure within the next couple of months as per the process timelines announced by DIPAM and Government of India,” Tata Steel further said.

ALSO READ: Govt approves sale of NINL to Tata Steel Long Products for Rs 12,100 cr

“The biggest advantage of privatisation will be to the local economy as the strategic buyer will be able to revive a closed plant, bring in modern technology, best managerial practices and infuse fresh capital, which will help in augmenting the capacity of the plant,” the Ministry of Finance said in a statement.

“This will help in creating new jobs by creation of ancillary industries and supplier’s network,” the statement added.

This is the first time a public sector steel manufacturing company has been privatised in India.

The new buyer will have to retain employees of NINL for one year.

The buyer will also be bound to follow the terms of the voluntary retirement scheme applicable for central PSUs, whenever such a decision is taken.

As reported by Business Standard earlier, the government had acceded to most demands of bidders, including reducing the lock-in period for sale of assets, excluding land and mining leases to one year from the date of completion of sale, from the earlier three years proposed by the government.

The promoter of NINL is MMTC, with the PSU owning 49.78 per cent stake in the firm State-owned National Mineral Development Corporation owns 10.10 per cent, and MECON and Bharat Heavy Electricals hold 0.68 per cent each. Odisha government-owned Industrial Promotion and Investment Corporation of Odisha (IPICOL) and Odisha Mining Corporation (OMC) own 12 per cent and 20.47 per cent stake in NINL.

The reserve price for the PSU was set at Rs 5,616.97 crore, and approved by the Cabinet Secretary-headed Core Group of Secretaries on Divestment.

The Tata Group arm beat bids submitted by two other bidders, including a consortium of Jindal Steel & Power and Nalwa Steel and Power, and JSW Steel. As the Centre does not directly own any stake in NINL, the sale will not lead to any divestment receipts for the exchequer.

Tata Steel owns a 74.91 per cent stake in Tata Steel Long Products. The buyer will pay 10 per cent of the bid amount which will be deposited in an escrow account. Based on the bidders’ demand, the government amended the earlier clause of depositing 100 per cent of the bid amount on the date of execution.

On the closure date of the transaction, shares will be transferred to the new buyer and the balance will be utilised in accordance with the waterfall agreement signed among the selling shareholders. Part-sale proceeds would be infused into the company to the extent of the liabilities, which will be set-off and the balance in the escrow account will be given to selling shareholders proportional to their shareholding.

According to the preliminary information memorandum, the amount paid by the bidder would be used towards settling labour dues, operational creditors, commercial lender debt, promoter debt and purchasing of 93.7% of shareholding of NINL.

According to a statement, the Letter of Intent (LoI) is being issued to Tata Steel Long Products, inviting it to sign the share purchase agreement.

“NINL represents a critical and strategic acquisition for TSLP with around 1 mtpa of steelmaking capacity, 2,500 acres of land for future growth and iron ore reserves of around 100 mt. Tata Steel lost no time in outlining an expansion plan. The acquisition of NINL provides a significant opportunity for Tata Steel to not only restart the 1 mt per annum steel plant expeditiously but also begin work immediately to build a 4.5 mtpa state-of-the-art long products complex in the next few years, and further expand it to 10 mt by 2030,” the firm said.

• Other bidders included consortium of Jindal Steel & Power and Nalwa Steel and Power; and JSW Steel

• Reserve price was set at Rs 5,617 crore

• NINL owes debt and liabilities of over Rs 6,600 crore

• LoI is being issued to Tata Steel Long Products

• Employee lock-in period to be one year; staff dues to be given highest priority

• As the Centre does not directly own any stake in NINL, the sale will not lead to any divestment receipts for the exchequer.