 "Posco offers lifeline to Uttam Galva promoters")
South Korean steel major, Posco, is playing the role of a white knight to help the Miglani family-controlled Uttam Value Steels and Uttam Galva Metallics find an investor to revive their expansion projects.
"Discussions have been held with China's Tidfore to pick up a stake in the company. Delegations from Korea and China were recently in India to meet the management of Uttam Galva and the lead lender, State Bank of India (SBI). It is likely to be a three-way venture between Uttam Galva promoters, Posco and Tidfore," at least two officials close to the development said. Tidfore is a state-owned infrastructure company.
According to the contours of discussions, the equity would be subject to fresh lending from the banks. Lenders had asked Uttam Galva promoters to bring in an investor.
The equity infusion from Tidfore will reduce the unviability of the project, one of the officials explained.
A senior SBI executive said the management had been in dialogue with lenders on roping in partners. The fresh fund (equity) injection can help to reduce leverage and bring down stress. "The strategic partners, Posco and Tidfore, are coming into an ongoing concern unlike any greenfield project like the one proposed by the South Korean steel major in Odisha, which had its own set of issues. The government has taken a slew of steps to address stress in the steel industry and outlook for the steel sector has improved in last few months," the executive said.
Between Uttam Galva Metallics and Uttam Value Steels, the entire product chain from pig iron to galvanised steel was in place. The capacity was 0.5 million but the companies planned to take it to two million tonnes.
Whether the companies will be merged and the exact structure of ownership was still being worked out.
Typically, the investment in a greenfield steel plant of one million capacity was around Rs 7,000 crore; for brownfield, it would be less, but even then could cost Rs 4,000-5,000 crore for a million tonne.
Posco is understood to be very keen on the venture. After having waited for a decade to set up a mega steel plant in India, it signed a memorandum of understanding for an integrated three-million tonne steel plant with Shree Uttam Steel & Power last August.
Later, in December, Uttam Galva Metallics signed an agreement with Posco for expansion of its project; Posco's equity at that point was primarily its technologies, Finex and CEM (compact endless cast & rolling machine).
But the Uttam Galva group got mired in debt problems and the project didn't make any headway.
On May 30, Uttam Value Steels informed stock exchanges that the accumulated losses had exceeded its networth and hence would have to be referred to the Board for Industrial and Financial Reconstruction (BIFR). Uttam Value Steels' debt as on March 2016 was Rs 1,255.80 crore.
As on March 2016, Uttam Value Steels had a negative networth of Rs 214 crore; its total debt was at Rs 1,255.80 crore and loss at Rs 520 crore against net sales of Rs 3,742.90 crore.
The latest data for unlisted Uttam Galva Metallics was not available, but as on March 2015, its networth was Rs 1,696.20 crore; its total debt was Rs 1,837.20 crore and profit after tax at Rs 27.40 crore on net sales of Rs 2,523.10 crore.
Lenders have also asked the promoters to get an investor for flagship Uttam Galva Steels, in which the ArcelorMittal group has a 33 per cent stake. Negotiations were on for separate deals for Uttam Galva Steels, an official said.
Uttam Galva Steels had a networth of Rs 433.40 crore at the end of March 2016. The company's total debt was Rs 3,739.40 crore and net loss was at Rs 1,555.40 crore against net sales of Rs 8,337.20 crore.
When asked, Posco India chairman and managing director GW Sung said, "I don't know."
