Tata Sponge is vehicle for acquiring Usha Martin steel biz

Tata Steel said its subsidiary, Tata Sponge, would be the strategic vehicle to undertake acquisition of Usha Martin’s (UML’s) steel business.

Tata Sponge’s board of directors, it was stated, would do the acquisition through a slump sale and had, accordingly, executed an agreement with Tata Steel and UML.

The board had done so, went the statement, after having evaluated independently the asset, financial forecasts, synergies, prospects and risks; also, the funding options.

The board of Tata Sponge 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 ~18 billion), external borrowings (up to ~25 billion), and issuance of non-convertible redeemable preference shares (up to ~10 billion).

Accordingly, it also announced a finTata Sponge is a 54.5 per cent subsidiary company of Tata Steel. It is in the sponge iron business and had apparently been evaluating ways to expand its product portfolio. Entry into steel manufacturing in long products was a route it had decided. It has no debt, with a free cash reserve of ~6.7 billion.

Tata Steel added on Wednesday it would, in future, support Tata Sponge’s growth and work synergistically to create a globally competitive long products business.

Tata Steel had on September 22 announced it was acquiring the steel business of UML, for ~45.25 billion. The said business comprises a specialised one million tonne annual capacity, based in Jamshedpur, a producing iron ore mine, a coal mine under development and captive power plants. Closing of the acquisition deal is, however, subject to fulfilment of various conditions under the agreements between the companies.