Tata Sponge to acquire steel business of Usha Martin for up to Rs 4,700 cr

Tata Steel Wednesday said its subsidiary Tata Sponge Iron will acquire the steel business of Usha Martin Ltd (UML) for Rs 4,300-4,700 crore.  With the acquisition, Tata Sponge Iron Limited (TSIL) will enter the steel business. Meanwhile, TSIL in a regulatory filing said it has been evaluating various strategic options beyond the manufacturing of sponge iron, to enhance its product portfolio and "has identified an entry into steel manufacturing in long products as a route to ensure sustainable long-term value creation for all its stakeholders".

Last month, the Tata Group company had announced the execution of definitive agreements for the acquisition of the steel business of UML through a slump sale on a going concern basis. On the cost of acquisition, TSIL said: "It is proposed that the steel business of UML will be acquired subject to transaction closing, for a cash consideration of between Rs 4,300-4,700 crore (subject to various transaction adjustments)".

Earlier in May, Bamnipal Steel Ltd, a wholly-owned subsidiary of Tata Steel, had acquired a controlling stake of 72.65 per cent in Bhushan Steel Ltd (BSL). Tata Steel had won the bid to acquire debt-laden BSL in an insolvency auction. "...We hereby inform you that, Tata Sponge Iron...Will now carry out the Acquisition. Consequently, definitive agreements signed between Tata Steel and UML in relation to the Acquisition shall be adapted accordingly," Tata Steel said in a regulatory filing.

The closing of the acquisition remains subject to execution of definitive agreements between Tata Sponge and UML and fulfilment of various conditions, including regulatory approvals required for the transfer of the steel business. Earlier, UML had said the sale of steel business to Tata Steel will help the company in "significant reduction" of its debt. The deal is expected to be completed in 6-9 months, it added.

UML's steel business comprises the specialised 1 mtpa alloy based manufacturing capacity in long products segment based in Jamshedpur, a producing iron-ore mine, a coal mine under development and captive power plants. Tata Steel Group is among the top global steel companies with an annual crude steel capacity of 27.5 million tonnes per annum (MTPA) as on March 31, 2018.

Usha Martin is amongst the largest wire rope manufacturers in the world and a leading speciality steel producer in India. Tata Steel further said that long products comprise an important part of the overall market for steel and demand for them in India, is expected to grow significantly in the future, especially in value-added customer segments like construction, automotive and engineering.

Tata Sponge has a debt-free capital structure and free cash reserves of around Rs 670 crore and it is therefore ideally placed to enter steel manufacturing with a focus on the attractive speciality long products portfolio, the company said. "Considering the alignment in the views of Tata Steel and Tata Sponge with regard to the latter's strategy of focusing on long products, Tata Steel as the promoter shareholder of Tata Sponge, has agreed to support Tata Sponge's strategy and has identified it as the strategic vehicle to undertake the acquisition of the steel business of UML," said Tata Steel.

The Board of TSIL has adopted a financing plan for the acquisition where along with its internal cash and cash equivalent resources it would raise financing by way of a combination or part of rights issuance (up to Rs 1,800 crore), external borrowings (up to Rs 2,500 crore), and issuance of non-convertible redeemable preference shares (up to Rs 1,000 crore)

Tata Steel further said it has noted the financing plan and confirmed its support, in-principle to the overall financing structure. Once Tata Sponge finalises the specifics of the above plan and approaches Tata Steel for investment support as may be necessary, the same will be considered by the Board of Tata Steel at the appropriate time, the release added.