European fund to buy out UTI stake in Tata Refractories

An European fund is close to acquiring UTI I's entire 6 per cent stake in Tata Refractories for an undisclosed amount.

Tata Steel holds 61 per cent in the closely-held subsidiary where the other shareholders include Life Insurance Corporation, Steel Authority of India and UTI-I.

Industry sources said the proposed investment in the Rs 353 crore company would provide an opportunity to the foreign fund to enter the growing domestic refractory sector.

"We knew that UTI-I will pull out of Tata Refractory. This was manifested by UTI I's move of keeping away from the recent rights issue of the company. But what interests us is that the exit of UTI I is providing an opportunity to the foreign fund to be associated with the growth story of the company," said a leading investment banker.

Sources said the investment would be a private equity play by the foreign fund, which meant that the fund would associate with the company for next four to five years and then would offload its stake at an opportune moment.

They said the proposed association of a foreign fund with the company might also mean a public issue by the company in the near future.

A round of consolidation has been due in the Rs 1,000 crore industry, which is largely dominated by Tata Refractories. According to Capitaline data, there are as many as 26 companies in the sector.

The consolidation has been kicked off with acquisition of the refractory business of ACC by ICICI Ventures. Industry sources expected that Tata Refractory would take a lead role in the consolidation process.

Industry sources said UTI I's shareholding came down to 6 per cent from 11.74 per cent, post the righst issue, as UTI I did not subscribe to the rights share. Before the rights issue, SAIL held 9.09 per cent and LIC held 8.75 per cent per cent.

Promoted by Tata Steel and Didier Werke of Germany, Tata Refractories began production in 1958. According to Capitaline data, the company posted a net profit of Rs 28.97 crore over a sales of Rs 353..29 crore in the financial year ended March 2005.