Sole Salem Plant bidder Jindal rethinks move

Jindal Stainless is now "rethinking" its plan to acquire Salem Steel Plant from Steel Authority of India Ltd (SAIL), with the company's price bid set to expire over the next fortnight.

Ratan Jindal, vice chairman and managing director, Jindal Stainless said, the company had received a request from merchants bankers, J M Morgan Stanley, and SAIL for an extension of three months but they were now rethinking as to whether they should extend the bid or not.

It may be mentioned that Jindal Stainless submitted the price bid on January 31 but, the bid was yet to be opened.

SAIL sources confirmed that the bid was not yet opened and the high powered committee set up for the disinvestment of SAIL was working on it. According to SAIL's official line, the PSU was being extra cautious since Jindal Stainless was the lone bidder for Salem.

Jindal Stainless and Tata Steel-Usinor were the only two shortlisted parties for Salem. However, the Tata Steel Usinor combine later opted out.

Jindal said, "We have not yet taken a decision on whether to go for an extension but, will decide within the next 7 days" he said.

However, Jindal Stainless was not open to any negotiations on the pricing of the bid. This was largely because the company would have to invest Rs 400-500 crore in Salem's annealing and pickling lines, if the bid materialised. Moreover, Jindal pointed out, the productivity levels were also very low.

While SAIL was dilly-dallying over Salem, Jindal Stainless had put their expansion plans on fast track.

The company had lined up an investment of Rs 125-150 crore to be spent on the hot stackel mill which would make it as big as Salem. Also, some expansion of the cold rolling capacity were underway.

Market estimates put the Jindal bid at around Rs 500 crore, which is below the book value of Rs 800 crore. Jindal however, refused to comment on the pricing of the bid.

As per the terms, Salem would be transferred to a joint venture company where Jindal Strips would hold 74 per cent and SAIL, the balance, for a year. After a year, Jindals would be given the option of buying out SAIL.

Disinvestment of Salem was in line with the financial restructuring and business restructuring agreement between SAIL and the government of India in 2000. As per the agreement SAIL decided to exit from non-core operations.