Mumbai: The date for submitting bids for Stemcor Holdings Ltd’s Indian assets has been extended to 6 January 2014 with due diligence from buying parties continuing to take place, according to a senior executive at JSW Steel Ltd, considered to be the hottest contender for the UK steel trader’s iron ore assets in Orissa.
“As on date, we are a serious bidder,” Seshagiri Rao, joint managing director and group chief financial officer of JSW Steel, said in an interview. “We are conducting due diligence…once all the data comes in, we’ll take a call.”
A successful sale will mark the process of consolidation in the financially troubled metals and mining sector in India. Stemcor is trying to sell its Indian assets as it owes its international creditors about $1.2 billion, according to a Bloomberg report.
Purchasing Stemcor’s assets comprising a 4 million tonne (mt) pellet plant, a majority stake in an iron ore mine and a slurry pipeline in Orissa, would give JSW Steel its first captive iron ore mine. Stemcor appointed Goldman Sachs to scout for the possibility of a sale of its Indian assets earlier this year as it came close to its deadline of repayment of loans this month.
Other than JSW Steel, Tata Steel Ltd and Jindal Steel and Power Ltd (JSPL) said they would bid for the assets valued at around $1 billion by investment bankers. Tata Steel’s group executive director (finance and corporate) Koushik Chatterjee said at a press meet in mid-November that the company did not have a serious interest in Stemcor, without further explanation.
Other firms said to be interested according to industry sources and unconfirmed media reports, are Aditya Birla group’s Essel Mining and Industries Ltd, international commodity trader Glencore India and Vedanta Resources Plc.
A senior official at JSPL contacted on Monday did not immediately comment, but other senior company officials said earlier they were interested in bidding for the company.
Spokespersons of Glencore, Aditya Birla group and Vedanta contacted earlier said they do not comment on speculative stories.
“We have never publicly announced a deadline on the sale process and all negotiations remain confidential,” said Charles Armitstead, the spokesperson for Stemcor in London, replying to a questionnaire on email. “Discussions relating to our Indian assets are continuing to make good progress,” he added.
A new twist to the sale process of Stemcor’s Indian assets came in September when the Calcutta high court put a stay on the sale on a petition filed by ICICI Bank Ltd saying that it was concerned about its loan of Rs.587 crore to Stemcor.
But two people, one close to the bidding process and another an industry observer, said ICICI Bank and Stemcor have been in talks and may reach an out-of-court settlement.
“The stay is on the sale, and not on the process and so the bidding process is being carried out,” said one industry executive from one of the bidding companies who did not want to be named.
Armitstead did not confirm if an out-of-court-settlement is being worked upon.
“We have been clear to say from the outset that we fully intend to meet all our obligations to ICICI Bank but we are not making any further comment than that,” he said.
If JSW Steel manages to purchase Stemcor, it could stress out its balance sheet as it already had a high debt of Rs.21,345.98 crore as of 31 March, the second highest among the top five steelmakers, Bloomberg data show. Its free cash flow stood at minus Rs.1,251.11 crore at the same time, the data show.
“Raising funds to purchase Stemcor could make its debt rise to 1.5 times its equity,” said Goutam Chakraborty, an analyst at Emkay Global Financial Services Ltd. “But it would still be a good purchase for JSW as this company is known for turning around things and making money on it.”
In addition, Stemcor would be a ready-to-produce asset that would not need any further investment, Chakraborty added.
JSW Steel is in talks with six-seven mining firms for purchase of equity in Karnataka and there are many offers from overseas for sale of mining assets owing to the fall in metal prices that have rendered them unviable.
To produce 10 mt of steel at its Karnataka plant, JSW Steel needs 18mt of iron ore. The firm has complained that supplies from Karnataka have shrunk as a result of a two-year crackdown on illegal mining that saw the Supreme Court ban and later reopen mining in a limited way in April.
Shares of JSW Steel ended Monday at Rs.935.25 apiece on BSE, up 1.78% from the previous close and up 25.96% from a year ago. The Sensex closed up 0.5% from its previous close and is up 8.06% from a year ago. The S&P BSE Metal index closed at 9,505.42 points, up 1% from the previous day and down 8.21% from a year ago.