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The Union government plans to sell 10% of RINL’s shares through an IPO. Photo: Mint (Mint)
The Union government plans to sell 10% of RINL’s shares through an IPO. Photo: Mint
(Mint)

RINL plans to merge OMDC with itself after share sale

Merger will allow RINL to use the miner’s iron ore output at cost price

Kolkata: State-owned steel maker Rashtriya Ispat Nigam Ltd (RINL) plans to merge Orissa Minerals Development Co. Ltd (OMDC), a mining firm it indirectly controls, with itself after the conclusion of its initial public offering (IPO) of shares.

The Union government plans to sell 10% of RINL’s shares through an IPO.

By merging OMDC with itself, RINL will be able to use the miner’s iron ore output at cost price. But if they remain two separate firms, OMDC will have to sell iron ore to the steel maker at a so-called arm’s length price, said A.P. Choudhary, RINL’s chairman and managing director, who also heads OMDC.

For the most optimal use of OMDC’s 206 million tonnes (mt) of iron ore reserves, it has to be integrated with RINL, he said. The Visakhapatnam-based steel maker is looking to raise its production capacity from 3.4 mt a year to 20 mt by 2025, and OMDC’s mineral reserves will come handy in expanding its production capacity.

OMDC has had to suspend production at all its six iron mines in Orissa for want of regulatory clearances or legal disputes with the state government. The company is trying to resolve the conflicts to restart mining.

Through a restructuring of ownership in 2011, the Union government transferred to RINL a 51% stake in Eastern Investments Ltd (EIL)—the holding company of OMDC and Bisra Stone Lime Co. Ltd (BSLC). This cost RINL 362 crore. EIL holds 50.1% in OMDC and BSLC, albeit indirectly.

Previously, the government had planned to merge EIL, the holding company, with RINL, OMDC’s former chairman Satish Chandra had said in an interview last year. Chandra resigned as chairman of OMDC in July.

However, the merger of OMDC with the steel maker “would not make sense" until the miner’s reserves are “reviewed" for determination of the swap ratio, Choudhary said.

The proposed IPO of RINL is delayed due to unfavourable market conditions, he said.

“Merging EIL with RINL will only make OMDC and BSLC our (RINL’s) direct subsidiaries, which would mean we would still have to buy iron ore at market price from OMDC," Choudhary said. The real value of OMDC’s mines can be realized by RINL only if the two firms are merged, he added.

The Union government had also proposed to merge BSLC with OMDC “to simplify operations", but said in a regulatory filing in September last
year that the merger had been postponed till the mining leases of their mines had been renewed.

Two of OMDC’s mines, Kolha-Roida and Dalki, had received forest and environment clearances, but could not start operations as the mining licences were not renewed by the Orissa government. The company is fighting a legal battle with the state government for renewal of the leases.

Four other mines of OMDC were awaiting statutory clearances for mining. All these mines got closed between 2006 and 2010. OMDC used to produce up to 2 mt of iron ore a year before its mines got shut.

Alongside, RINL plans to list EIL on BSE and the National Stock Exchange as soon as newly appointed independent directors join the board, Choudhary said. EIL’s shareholders have been demanding that the company’s shares be listed on the Mumbai-based bourses, and not on the Calcutta Stock Exchange alone, where hardly any trading takes place.

“The shareholders of EIL will hardly gain anything from the company’s proposed merger with RINL until the fair value of EIL’s shares was discovered through active trading," said Snehal Shah, a minority shareholder of both EIL and OMDC.

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