Home >companies >Visa Steel to merge Baosteel JV with itself

Kolkata: Visa Steel Ltd has decided to merge with itself Visa Bao Ltd, its ferrochrome producing joint venture with Chinese state-owned Shanghai Baosteel Group Corp., and sell a substantial stake in its speciality steel business, which is being carved out of the firm.

The proposed merger of Visa Bao will result in Baosteel, the world’s second largest steelmaker, getting a small stake in Visa Steel, which according to Visa group chairman Vishambhar Saran, will not exceed 10%.

Baosteel owns 35% in the joint venture; the rest is held by Visa Steel.

The management of Visa Steel is keen that the Chinese steelmaker increases its stake going forward. But the promoters of Visa Steel also have the option to buy out Baosteel’s minority stake in the firm, Saran said in a phone interview.

Visa Bao was set up in 2007 to pursue a 300 crore project, of which 91 crore was funded by equity infused by the two partners. It currently produces 100,000 tonnes of ferrochrome a year.

Ferrochrome is a key ingredient for manufacturing stainless steel.

Alongside, the group has also decided to sell up to 49% in its speciality steel business, which had been transferred from Visa Steel to Visa Special Steel Ltd, a firm founded in 2012, to cut down the group’s consolidated debt of 2,800 crore.

Visa Steel’s shareholders approved the transfer of this business on 10 June. Both the proposed moves—the merger of Visa Bao and the transfer of business to Visa Special Steel—are expected to be concluded in the current fiscal year, according to Saran.

Visa Steel’s shares jumped 4.27% on BSE to 25.65 each in a buoyant market that saw the Sensex gaining 324.86 points, or 1.27%, to close at 25,841.21 points.

Several multinational steelmakers have shown interest in buying into Visa Special Steel, which is looking to double its production capacity to 1 million tonne (mt) per annum, according to Saran.

India, other than Russia, is the only country where steel demand is expected to grow in the near term, and so following the change of government at the Centre, there’s renewed interest in India among global steelmakers, according to Saran.

India’s steel production capacity has the potential to go up to 300 mt by 2025 from a little over 80 mt at present, according to a recent report from Kotak Securities. By comparison, China alone produced 779 mt of crude steel in 2013, accounting for about 48.5% of the global output.

Saran said Visa Steel has capital raising plans in the medium to long term, which may result in the promoters’ stake getting diluted by up to 15 percentage points. He currently owns 75% in Visa Steel through two investment arms.

He, however, ruled out going to the market immediately, citing poor valuation. The company had in February 2006 sold shares at 57 apiece through its initial public offering, or IPO, to raise close to 200 crore.

In fiscal 2014, Visa Steel had registered a net loss of 143.55 crore on a consolidated net revenue of 1,415.84 crore.

Two-thirds of its revenue came from its own ferrochrome production—Visa Steel produces 60,000 tonnes of ferrochrome a year—and the rest from steel.

If demand for steel improves going forward, the ratio could potentially reverse, according to Saran.

Demand for steel in India has remained flat in the past few months and some companies that have had their loans restructured are struggling to follow even revised repayment schedules, said a steel sector analyst who works with a leading rating agency. He asked not to be identified.

Contrary to Saran, this person said global steelmakers didn’t seem to have much appetite immediately for investments in India, he added.

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