Hanoi/Mumbai: Tata Steel Ltd, the world’s sixth-largest steel maker, and Vietnam Steel Corp. plan to spend $3.5 billion (Rs14,000 crore) on a steel-and-iron ore venture in the Southeast Asian nation to supply construction and shipping companies.
Tata Steel will hold 65% of the 4.5 million tonnes (mt) plant and 30% of the iron ore mine, making one of the biggest foreign direct investments in Vietnam, said managing director B. Muthuraman in Hanoi on Tuesday after signing the accord.
Tata Steel joins rivals such as Arcelor Mittal and Posco in seeking to expand in Asia, where steel usage is growing faster than in Europe and the US. Vietnam, with limited steel making capacity, imports half its annual 7mt requirement to supply shipping and construction companies that are expanding at 12% a year, according to the Mumbai-based firm.
“Tata is a global company and it can sell wherever there is demand,” Rakesh Arora, an analyst at Macquarie Securities Ltd in Mumbai, said. “The company is going wherever there is raw material so it can produce at a low cost.” The brokerage has an “outperform” recommendation on the shares.
Tata will build the mill in the Ha Tinh province in northcentral Vietnam and develop the Thach Khe iron ore mine, it said in a statement. The investment will be phased over 10 years. “We want to move things very quickly and it would take us about four years” to build the plant, Muthuraman said. “It’s the normal period of time. If we can do it faster, it’s better.”
Posco signed an accord on Tuesday with Vietnam Shipbuilding Industry Group to examine the possibility of building a factory, potentially its fourth in the country. India’s Essar Steel Ltd said in February it will tie up with two state-owned Vietnamese companies for a $527 million plant.
Tata, which bought UK’s Corus Group Plc. for $12 billion, wants to double output to 50mt by 2012 by adding new capacity and acquiring rivals, Muthuraman had said on 17 May.
An increase in steel prices helped fuel a 31% rally in Tata Steel’s shares this year, making them the third-biggest gainers on the benchmark Sensex. The stock rose 0.8% to Rs630 on Tuesday.
NatSteel, Tata Steel’s first purchase outside South Asia, gave Tata steel plants in Thailand, Malaysia, the Philippines, Australia, Vietnam and China. In December 2005, Tata agreed to buy Thailand’s Millennium Steel from Siam Cement Plc.
NatSteel is currently in a bidding war with Prudential Plc. fund management to acquire two of Vietnam Industrial Investments Ltd’s biggest steel units that can make a total of 430,000 tonnes. Prudential raised its offer to $13.3 million after Vietnman recommended Tata Steel’s $12 million offer.