Mumbai: Tata Steel on Thursday agreed to sell its 26% stake in Australia’s Riversdale to Rio Tinto for $1.1 billion, giving the Anglo-Australian giant full control of the coal miner.
Tata, the world’s No 7 steelmaker, will sell shares in an open offer at A$16.5 each. Riversdale shares closed little changed at A$16.50 in Sydney on Thursday before Tata Steel’s announcement.
Tata will keep its 35% stake in a Riversdale unit that owns coal assets in Mozambique and will discuss ways to enhance participation in the Benga joint venture, the company said in a statement.
Tata Steel said its Riversdale investment has generated a return of about 100% over four years.
“The company probably feels cash will be more valuable at this time than holding on to the stake,” said a metals analyst at a Mumbai brokerage who declined to be named.
Tata had repeatedly said it would hold on to the Riversdale stake as coal supplies were crucial for its European steel making operations, which account for almost two-thirds of its 28 million tonnes global capacity.
Rio won majority control of Riversdale earlier this year with a $3.9 billion bid for the Africa-focused miner.
In April, Rio raised its holding to 73% after striking a deal with Brazilian steelmaker CSN for its 19.9% stake in Riversdale and said it planned to delist the company.
Tata Steel, which does not have long-term coal supplies locked-in to fuel its European steel plants, last month warned rising raw material costs could hurt margins for a couple of quarters.
The Indian company may use funds from the sale to repay some of its $13 billion debt, the analyst said. It is also expanding capacity by 3 million tonnes at its India plants.
In January, Tata Steel raised $770 million in a share sale to help fund its expansion plans.
Ahead of the news, Tata Steel shares fell 1.5% to Rs 553.25 in a weak Mumbai market.