Mumbai: Riding piggyback on specialty steel maker Uttam Galva Steels Ltd, the world’s largest steel maker ArcelorMittal Netherlands BV is finally entering India.
Mumbai-based steel maker Uttam Galva, which has a capacity of 0.8 million tonnes, on Friday announced a “co-promotion agreement” that will entitle the Luxembourg-headquartered steel maker to become a co-promoter in the Indian steel maker.
Uttam Galva, in a late evening notice to the Bombay Stock Exchange (BSE), announced that it will allow ArcelorMittal to acquire shares in the company through an open offer.
Back home: ArcelorMittal chief Laxmi N. Mittal. Madhu Kapparath / Mint
Following this, both ArcelorMittal and the current promoters of Uttam Galva will be equal partners in the company. The process of joint partnership will be done in three stages, a person familiar with the development said on condition of anonymity.
At the first stage, Lakhmi Mittal-owned ArcelorMittal will purchase a 5% stake for Rs69.6 crore at Rs120 a share.
Subsequently, the Mittals will make an open offer to purchase a 30% stake at the same price paid to the promoters for the 5% stake, valuing the company at Rs1,384.3 crore.
In case the open offer gets poor investor response, the Miglanis, Uttam Galva’s promoters, will sell part of their stake to make up the difference. This is to ensure that ArcelorMittal’s stake equals that of the Miglanis in the company. The open offer will cost ArcelorMittal Rs415 crore.
Uttam Galva stock rose nearly 10% to close at Rs113.70 on BSE on Friday even as the benchmark index Sensex ended 1.9% higher. At this price, Uttam Galva’s market value is Rs1,362.69 crore. The open offer is priced at a 5.54% premium to Friday’s closing price.
“We have been talking to ArcelorMittal for sometime,” Rajinder Miglani, who has been in the business for 45 years, said over the telephone. “The whole purpose of the joint venture is to grow the business in India and transform Uttam Galva Steel from a galvanized player to an integrated steel maker,” said Miglani, a long-time friend of the Mittal family.
Uttam Galva has been growing at a rapid pace.
“The company had plans to invest Rs400 crore in enhancing capacity at a service centre and product mix over the next one year with investments from internal accruals and debt,” according to a 27 August report by KR Choksey Shares and Securities Ltd.
Eyeing India: Workers at a smelter in the Arcelor Ghent mill in Belgium. ArcelorMittal plans to build a 12 million tonnes steel plant in Orissa. Paul O’Driscoll / Bloomberg
It has plans to export half the 0.8 million tonnes of steel it produces to at least 40 countries, the KR Choksey report added. Incidentally, the Miglanis had pledged 67.12% of the promoter stake to raise money. The promoter holding in the company is 41%.
Niraj Shah, an analyst with Centrum Broking Ltd, a Mumbai-based brokerage, said it’s a win-win situation for both the companies. For Uttam Galva, it would mean security on the raw materials front and value addition to the brand, while for ArcelorMittal, which does not have a presence in India as of now, the relationship will mark a symbolic presence. “It will be ground testing for ArcelorMittal before they enter the Indian market,” he said.
India-born Lakshmi Mittal, who holds an Indian passport and had for many years expressed his desire to set up a greenfield project in India, has not yet been able to make headway in his plan for setting up greenfield projects in India.
ArcelorMittal plans to build a 12 million tonnes steel plant in Orissa, and the initial plan was to commission the first phase of the project by 2012. The India plan also includes setting up a similar greenfield project in Jharkhand.
Meanwhile, Malay Mukherjee, senior executive at ArcelorMittal, joined Essar Steel Ltd as its CEO on Friday. Mukherjee, who joined the group in 1993 from Steel Authority of India Ltd, was on the board of ArcelorMittal and was a confidante of Mittal.
The net sales of Uttam Galva for the June quarter were down 4% to Rs1,073.3 crore. Profit after tax stood at Rs42.49 crore, a fall of 13% quarter on quarter.
Shally Seth contributed to this story.