New Delhi: Steel Authority of India (SAIL) will spend $12 billion to build four overseas plants, mostly funded through debt, its chairman said, as India’s biggest domestic producer sets its sights on expansion.
The state-run company is also looking for a strategic investor for the proposed plants in Indonesia, Oman, Mongolia and South Africa, which would produce three million tonnes of steel each, CS Verma told reporters.
“Funding of $12 billion will be met through 70-80% of debt and the rest 20-30% through equity,” Verma said.
Last week, Verma announced plans for the Mongolian plant, the company’s first major foray outside India.
“We are talking to the governments of the countries where we plan to set up steel plants and it will take about three years to start the plants from the date of signing of (memorandum of understanding) with these governments,” he said on Monday.
The steel industry globally has been caught in a margin squeeze since the middle of 2010, when raw material costs began to steadily rise, but steel prices dropped as activity slowed.
While demand is improving from the auto sector, the other key market, construction, is still struggling.
Shares of the company, in which the government holds around 86%, were broadly flat on Monday as Bombay’s top 30 shares index rose 1.25%.
“We don’t see this as a major positive for the company. They have enough options to increase capacity in India and spending outside is not required at this point, “ said Rakesh Arora, sector analyst at Macquarie Research in Mumbai.
“I expect the shares to be range-bound. There is no real hurry to buy,” he said.
Another analyst said the plans were sensible although they would take time to set up.
“As the company is already scouting for coal in places like Australia, it makes sense to set up steel plants in countries where demand is robust. But steel plants will take time. These are long-term projects,” an analyst with a Mumbai brokerage said.
SAIL’s rival Tata Steel acquired Corus, Europe’s second-largest steelmaker, in 2007 for $13 billion.
SAIL is also part of the International Coal Ventures Ltd (ICVL) consortium which has bid for a Mongolian coal mine and is looking to buy overseas coal assets in countries such as Australia, Indonesia and the United States.
Other companies in the group are utility NTPC , iron ore miner NMDC , Coal India and Rashtriya Ispat Nigam Ltd.
Last week, the Indian government put off a further share sale in SAIL to the next fiscal year that begins in April, citing unfavourable market conditions.