JSW, Liberty group may participate in strategic sale of NMDC steel plant

Nagarnar Steel Plant with 3 mn tonne capacity is likely to be commissioned by June-July next year. disinvestment process is expected to be completed by September 2021

Sajjan Jindal-controlled JSW Steel and Sanjeev Gupta-led Liberty Steel Group may look at participating in the strategic disinvestment of NMDC’s Nagarnar Steel Plant (NSP). 

NSP has a capacity of 3 million tonnes per annum (MTPA) and is likely to be commissioned by June-July next year. The decision to demerge and divest the plant was taken by the Cabinet last month. The disinvestment process is expected to be completed by September 2021.

JSW Steel’s joint managing director and group chief financial officer, Seshagiri Rao, said, “We have not done due diligence. If the opportunity comes up, we will examine it.” He added it would have to be seen what kind of facilities the plant had.

Sanjeev Gupta, who lost out on the chance to acquire a mega steel plant under the Insolvency and Bankruptcy Code (IBC), said his company would look at every opportunity that emerged in India in steel, aluminum, and renewable energy. “We don’t want to comment on processes that we have not yet made public. These are our three core sectors and in these three, we would definitely like to participate wherever there is a good asset, where we think it is good value and we can play a role,” he said. 

In the last two years, Gupta had made some unsuccessful bids for assets under the IBC, including the 3-MTPA Bhushan Power & Steel (BPSL), before he bagged Adhunik Metaliks (1 MTPA).

JSW, on the other hand, acquired BPSL. It has also lined up organic expansion, and combined with inorganic options, its capacity next year is likely to be around 27 MTPA. Through the organic route, JSW would have 23 MTPA; the rest would be inorganic, which includes BPSL and Monnet Ispat.

The industry is expecting NSP to generate interest from other investors as well, as most of the mega steel plants have already changed hands under the insolvency law. Rao, too, said there was not much left in India in the upstream or downstream.

Five stressed steel assets were auctioned under the IBC from the Reserve Bank of India’s first list of non-performing assets (NPAs): Essar Steel, Bhushan Steel, Bhushan Power & Steel, Electrosteel Steels, and Monnet Ispat. 

Among the bigger ones, Essar Steel (9.7 MTPA) was acquired jointly by ArcelorMittal and Nippon Steel; Bhushan Steel (5 MTPA) by Tata Steel; and BPSL (3 MTPA) by JSW Steel. The BPSL case, however, is in the Supreme Court and is posted for final hearing on November 3.

Vedanta entered the steel sector with the acquisition of Electrosteel Steels. The stressed steel assets had fetched good valuations largely because greenfield projects in India are often marred by delays.

Priyesh Ruparelia, vice-president, co-head (corporate ratings), ICRA, explained, "Given that there is a paucity of steel capacity expansion projects in India currently and the fact that any fresh project announced now would take at least three to four years for completion, a sizeable fresh steel capacity would be attractive for domestic steel players. However, since most of these companies have a leveraged balance sheet at present, investment/capex requirements will be a key consideration." 

Industry sources said a major game changer for the disinvestment process of NSP would be mine linkages. 

Sources indicated that under NMDC, a Bailadila deposit with mineable reserves of up to 107.59 million tonnes was earmarked for the steel plant. Whether the buyer would be assured of a negotiated price for raw material linkages was not clear at this point, they added.

NSP is the only greenfield project slated for commissioning in the near term. The commissioning of the project got delayed due to Covid-19 pandemic.

“Because of the pandemic, foreign experts are unable to come. They have to come and certify before some of the packages are handed over,” said a source.

As on July 14, 2020, the revised estimated cost of setting up NSP was Rs 23,140 crore. NMDC has invested Rs 17,186 crore in the project, of which Rs 16,662 crore is from NMDC’s own funds and Rs 524 crore has been raised from the bond market. Once NSP is demerged, shareholders of NMDC will also be shareholders of the demerged company in proportion of their shareholding.

The disinvestment of NMDC would help the government meet its disinvestment target. For 2020-21, the target was Rs 2.1 trillion, but Covid-19 delayed some plans.