NMDC's steel plant sale may fetch enterprise valuation of up to $4 bn

Lenders, shareholders meeting to demerge steel company on Tuesday

Bankers and shareholders of mineral firm NMDC are set to clear the demerger of the steel plant on Tuesday, paving the way for its sale. Some of India's top steel companies are expected to participate in the sale process of the demerged entity, which could fetch an enterprise valuation of up to $4 billion as the competition will be intense due to its access to iron ore mines in Chhattisgarh, say bankers.

The Indian government currently holds 60.8 per cent stake in the company and is keen to sell its stake in the three-million-tonne-per-annum steel plant at Nagarnar, Chhattisgarh in the ongoing calendar year. Under the demerger plan, the steel company would have a mirror shareholding of NMDC, and the Rs 18,000 crore invested by NMDC in the steel plant would be transferred to Nagarnar Integrated Steel Plant (NISP) as equity.

“Unlike the Bharat Petroleum Corporation sale process, where the government had received a single bid and the sale was abandoned, NMDC’s steel plant would see all steel companies making a bid as it has access to iron ore mines,” said a banking source. Tata Steel, JSW Steel, ArcelorMittal and Vedanta are likely to participate in the sale process, the banker said, asking not to be quoted.  

In an interview in February this year, Tata Steel MD and CEO TV Narendran had said the company is not looking for other assets after Nilachal Ispat acquisition. 

NMDC shares closed 3.25 per cent up at Rs 111.10 on the BSE on Monday, with a total market valuation of Rs 32,559 crore. The shares have lost 16.7 per cent in value since January. The lenders and shareholders meeting was earlier scheduled to be held on June 7, but had to be postponed as the chairman appointed by the Ministry of Corporate Affairs for the meeting was unavailable and due to the lack of a quorum among the equity shareholders, according to an NMDC notice to the stock exchanges.

NMDC had a consolidated debt of Rs 3,500 crore as on March this year, a part of which will be hived off to the steel company.

In 2019, the NMDC board had approved fund raising of Rs 5,000 crore as capital expenditure for the steel plant. Of this, a rupee term loan of Rs 4,476 crores was raised from State Bank of India for part funding of the steel plant. The company has already drawn Rs 1,144 crore from this facility and these loans will be transferred to the new owner. The total project cost of NISP was Rs 21,940 crore and the commissioning of the plant, scheduled for March this year, was delayed due to technical issues. The Indian government has asked NMDC to expedite the commissioning of the steel plant.