Snapshot
- Earlier, Tata Group had announced its ambition to increase its crude steel capacity to 40 million tons per annum by 2030 in India.
- The NINL acquisition by the company strengthens this growth plan while providing the enablers to even go beyond the 40 million tons target.
Tata Steel is aiming to restart the 1 million tonne (MT) Neelachal Ispat Nigam Limited (NINL) steel mill in the next three months, its CEO and Managing Director T V Narendran said on Wednesday (6 July).
The Odisha-based plant has been closed for almost two years. The restart plan follows the handover of the NINL to Tata group firm Tata Steel Long Products (TSLP) on Monday (4 July).
The plan is to not only restart the steel plant expeditiously but to also work simultaneously to expand the capacity by building a 4.5 million tons per annum state-of-the-art long products complex in the next few years, and further expand it to 10 million tons per annum by 2030.
Tata Steel’s next move will be to take ownership of NINL and work hard along with employees and other stakeholders to realise the full potential of the asset, Narendran said.
“We are ready to work with existing employees and restart the plant which has been closed for almost two years. We hope to get the production started in the next three months and ramp up to the rated capacity over the next 12 months,” the top official said.
Strategic Disinvestment
Tata Steel Limited on 4 July completed the acquisition of NINL through its subsidiary company Tata Steel Long Products for a consideration of Rs 12,000 crore.
Neelachal Ispat Nigam Limited is a Joint Venture of four Central Public Sector Enterprises (CPSEs), namely MMTC (shareholding of 49.78 per cent), NMDC (10.10 per cent), BHEL (0.68 per cent), MECON (0.68 per cent) and two Odisha government PSUs, namely Odisha Mining Corporation (OMC) (20.47 per cent) and Investment Corporation of Odisha Ltd (IPICOL) (12.00 per cent).
NINL Strategic Disinvestment transaction was completed with the transfer of 93.71 per cent shares of the Joint Venture Partners to the Strategic Buyer, M/s Tata Steel Long products Limited.
TSLP had in January emerged as the winning bidder, putting in bids worth Rs 12,100 crore for loss-making NINL, out-bidding JSW Steel Limited and a consortium of Jindal Steel and Power Limited and Nalwa Steel and Power Ltd. TSLP’s bid was more than double the reserve or base price of Rs 5,616.97 crore for NINL.
Following approval of the highest price bid of TSLP on 31 January 2022, the Letter of Award (LOA) was issued to the winning bidder on 2 February, 2022.
The Share Purchase Agreement (SPA) was signed on 10 March 2022, following which the Strategic Partner, NINL and the six Selling Shareholders worked towards satisfying a set of conditions defined in the SPA including certification of operational creditor’s dues, employees’ dues, sellers’ operational dues and sellers’ financial dues.
The enterprise value of Rs 12,100 crores paid by the strategic buyer has been utilised as per the SPA for settlement of dues of employees, operational creditors, secured financial creditors and sellers (operational and financial dues) and for equity of selling shareholders as per SPA.
The transaction has been completed on “going concern” basis and the employees of NINL will continue to be the employees of the company in terms of the SPA, which binds the buyer to have a lock-in period of one year. The strategic buyer will also be bound to follow the terms of Voluntary Retirement Scheme (VRS) applicable to CPSEs whenever such a decision is taken.
Sell-off
NINL has an integrated steel plant with a capacity of 1.1 MT, at Kalinganagar, Odisha. Set up in 1982 to promote industrialisation in the state of Odisha, the company has been underperforming for many years and running in huge losses. The steel plant ceased operating in March 2020.
The company has huge debt and liabilities exceeding Rs 6,600 crores as on 31 March 2021, including huge overdues of promoters (Rs 4,116 crore), banks (Rs 1,741 crore), other creditors and employees. The company has negative net worth of Rs 3,487 crore and accumulated losses of Rs 4,228 crore as of March 2021.
Significance
The privatisation of NINL is the second such successful attempt by the current government. Incidentally, Air India — the first company on the privatisation list — too was bought by Tata Group.
This is the first instance of privatisation of a public sector steel manufacturing enterprise in India. The success of the transaction is a win-win situation for all.
The biggest advantage of privatisation will be to the local economy of the region as the strategic buyer will be able to revive a closed plant, bring in modern technology, best managerial practices and make infusion of fresh capital, which will help in augmenting the capacity of the plant.
Focus on Long products
Given that Tata Steel has a significant presence in Odisha where it operates a state-of-the-art 3 MT plant at Kalinganagar (and expanding it), the group viewed NINL as a strategic fit to the existing unit, apart from increasing exposure to the long products.
“Acquisition of Neelachal Ispat Nigam Limited is a historic achievement and a significant milestone towards building a dedicated long products facility for the Tata Steel Group. The completion of the transaction is a testimony to Government of India’s focus on its disinvestment programme. The acquisition also reflects Tata Steel’s commitment to the state of Odisha and the communities around its operations,” said Narendran.
The long products segment (products made from billets and blooms, which are mainly used in the construction sector) in India is poised to witness significant growth as India builds its infrastructure through government’s Atmanirbhar Bharat programme along with the pick-up in the retail housing segment in semi-urban India.
Tata Steel group is among the top global steel companies with an annual crude steel capacity of 34 million tonnes per annum. It is one of the world’s most geographically diversified steel producers, with operations and commercial presence across the world.
The group had earlier announced its ambition to increase its capacity to 40 million tons per annum by 2030 in India, and the NINL acquisition strengthens this growth plan over the next decade while providing the enablers to even go beyond the 40 million tons target.