MUMBAI: Natsteel Asia Pte, a unit of India’s Tata Steel Ltd, agreed to buy two steel-bar rolling plants in Vietnam to tap an economy growing at more than 7% a year.
Natsteel Asia will pay $41 million (Rs182 crore) for the plants including assumed debt and expects to complete the purchase by June 2007, the company said on 8 March.
Tata Steel, which won an auction to buy UK’s Corus Group Plc for $12 billion in January, joins producers such as Arcelor Mittal and Posco in seeking to invest in Asia, where demand for buildings and autos is growing. Steel usage in Vietnam may rise to 10 million tonnes by 2012, from 6 million tons, according to India’s Essar Steel Ltd, which is planning a $527 million plant with two Vietnamese companies.
“Southeast Asia is one of the fastest-growing markets for steel in the world and it makes sense to have a bigger share of the market there,” said Hitesh Agrawal, an analyst at Mumbai- based Angel Broking Ltd. “It will continue to be a lucrative market for the foreseeable future.”
Vietnam’s economy has more than doubled over the past decade, with annual growth exceeding 7% since 2002. Its $53 billion economy is moving away from its agricultural roots as industry and construction now make up 41% of gross domestic product and services.
NatSteel is acquiring two of the biggest units of Vietnam Industrial Investments Ltd., SSE Steel Ltd and Vinausteel Ltd, which have a combined capacity of 430,000 tonnes a year, the company added. Steel bars and rods are in construction.
Operations at SSE and Vinausteel have been affected by the volatility in prices of billets, a raw material, said Alan Young, chief operating officer of Vietnam Industrial. Tata Steel plans to supply low-costs billets made in India to NatSteel by end of next year, Mukherjee said on 15 February.
Vietnam Industrial’s shareholders will get $10.8 million, including $2.7 million to be held in escrow pending recovery of past dues and finalization of tax issues, the company said in a statement to the Australian Stock Exchange.
Economies in East Asia including China, Malaysia and South Korea, will grow 7.3% next year, three times faster than the 30 nations of the Organization for Economic Cooperation and Development, the World Bank said in a report in November. The forecast excludes Japan and the Indian subcontinent.
“This acquisition is part of the company’s strategy to establish itself as a strong player in the construction sector that is growing rapidly in Asia,” Tata Steel Deputy Managing Director TK Mukherjee said.
Posco in November said it will spend $1.13 billion to build two mills in Vung Tau city by 2012 to make hot-rolled and cold- rolled coils. Posco will buy the hot-rolled coil needed for the first plant from Korea or import it from other countries until its plant in the India’s Orissa state is completed.
Shares of Tata Steel dropped as much as 3.3% to Rs399 on the Bombay Stock Exchange.
NatSteel, Tata Steel’s first purchase outside South Asia, launched Tata Steel plants in Thailand, Malaysia, the Philippines, Australia, Vietnam and China. In December 2005, Tata agreed to buy Thailand’s Millennium Steel Pcl from Siam Cement Pcl.
The Corus transaction will earn a coompany with a revenue of $24.4 billion and lift Tata to fifth from 56th in global steel rankings. Mittal Steel Co. acquired Arcelor SA last year for $38.3 billion in the industry’s biggest-ever takeover.
“Steel industry worldwide is consolidating and anyone who wants to grow substantially has to look at an inorganic way of growing,” said Agrawal. “That’s what Tata is doing.”