The deal between Bhushan Steel and Japan's Sumitomo Metal Industries to jointly develop a six-million tonne steel unit in West Bengal has run into rough weather, with no agreement in sight on valuations even a year after both began negotiations.
Nittin Johari, director (finance), Bhushan Steel, told Business Standard, “The talks are stuck, as there are difference over the valuation for the project. We need to resolve the issue.”
When asked specifically about the money Bhushan Steel has been asking Sumitomo to pay, Johari said, “I can't disclose that but there are certain issues which we are trying to resolve. The talks have been extended because of that.”
As the matter stands, the technical agreement between the two companies is signed and sealed. Sumitomo will be supplying technical knowhow to Bhushan and market the steel produced from Bhushan’s steel plant in Orissa.
Bhushan had intended that Sumitomo might also take a 40 per cent stake in the West Bengal plant, which would mean injection of crucial money for the project. Johari said, “Its good for us if the deal goes through but we have no issues if it doesn't. We will look at other avenues to raise the money.”
Initially, Bhushan had planned to set up a three-million tonne steel plant in West Bengal but doubled the planned capacity once Sumitomo expressed its intention to invest. The intended total investment is the plant is still not clear. However, an analyst from a domestic brokerage says, “As a thumb rule, it takes $1,000 per tonne, so for a six-million tonne plant, the company will require roughly Rs 30,000 crore.”
The project is likely to come up in two phases of three million tonnes each. The analyst added that in most big-ticket projects, the maximum funding is deployed in the first phase, for setting up required infrastructure for the entire project. “It is safe to assume that even in this case, if the total investment is around Rs 30,000 crore, Bhushan will be spending close to Rs 20,000 crore in the first phase itself.”
Neeraj Singhal, managing director, Bhushan Steel, during the deal announcement in 2009, had hinted that phase-I of the project could be close to Rs 20,000 crore and the stake sale to Sumitomo would be used as part-funding.
In December last year, Bhushan Steel had said the two companies had agreed to jointly develop the West Bengal project, with Sumitomo providing the technical knowhow and a;so perhaps helping in marketing the product. The company had also said Sumitomo may take a 26-40 per cent stake in the six-million tonne plant.
