Es­sar Steel may rope in Ja­panese part­ner

RAIS­ING FUNDS Ruias-led co look­ing for strate­gic in­vestor, ICICI Se­cu­ri­ties, SBI Caps ap­pointed to ad­vise on deal

Hindustan Times (Patna) - Live - - Business - Ram­surya Mami­denna ram­surya.mami­denna@hin­dus­tan­times.com

The Ruias-led Es­sar Steel is look­ing for a for­eign com­pany, most likely Ja­panese, as a strate­gic in­vestor, to re­duce its mount­ing debt and fund cap­i­tal ex­pen­di­ture plans, sources said.

Es­sar has ap­pointed ICICI Se­cu­ri­ties and SBI Caps as ad­vi­sors for the pos­si­ble stake sale, which is ex­pected to re­duce its debt of about `30,000 crore. The com­pany could also rope in to in­clude large traders who typ­i­cally have a ro­bust cash flow, soruces added.

The move is also to likely to help the com­pany tide over fac­tors af­fect­ing full util­i­sa­tion of Es­sar’s ca­pac­i­ties due to price and sup­ply con­straints in nat­u­ral gas, a ma­jor com­po­nent of steel-mak­ing. The com­pany has 20 mil­lion tonnes of pel­let-mak­ing ca­pac­ity — an in­ter­me­di­ate raw ma­te­rial needed for pro­duc­ing steel— and over 10 mil­lion tonnes of steel ca­pac­ity.

While a com­pany spokesper­son did not of­fer com­ments be­yond the ap­point­ment of the ad­vi­sors, peo­ple con­nected with the is­sue said: “Re­stric­tions on gas sup­plies have forced us to op­er­ate at about 60-65% ca­pac­ity. This comes at a time when the over­all steel mar­ket is down due to the global lull and dump­ing by the Chi­nese and other steel mills has af­fected the abil­ity to ser­vice pay­ments.”

“Ma­jor steel com­pa­nies across the world are tak­ing steps to cut costs and raise funds. In­dia is no dif­fer­ent and it is im­por­tant that mea­sures are now taken to main­tain the long-term health of the steel industry. It is in this con­text that Es­sar Steel has taken a proac­tive de­ci­sion to in­duct strate­gic/financial in­vestors into the com­pany,” the com­pany said in a state­ment.

In­dian steel­mak­ers’ pref­er­ence for Ja­panese firms is not new. In 2012, Sa­j­jan Jin­dal-led JSW roped in Ja­pan’s JFE as eq­uity part­ners,while a year ear­lier, the Tatas formed a joint ven­ture (JV) with Ja­pan’s Nip­pon Steel.

Ja­panese steel com­pa­nies have also been eye­ing the In­dian steel industry be­cause of the avail­abil­ity of raw ma­te­ri­als such as iron ore, and ris­ing de­mand from do­mes­tic com­pa­nies, es­pe­cially those in defence and aero­space.

“Among for­eign play­ers, Ja­pan has had a rel­a­tively bet­ter track record of man­ag­ing the In­dian industry,” said a mem­ber of a promoter fam­ily which owns a large steel-mak­ing fa­cil­ity in Mum­bai. “While Korea had evinced in­ter­est ear­lier, the ex­pe­ri­ence of Posco, which could not progress in build­ing a green­field plant in In­dia, may have dis­cour­aged them. Al­ready, most of the steel made by Ja­pan and Korea is af­fect­ing lo­cal steel­mak­ers in In­dia.”

Es­sar Steel could also look at bring­ing in a trader. Glob­ally, firms such as UK-based Stem­cor, the Klesch Group, US-based Nu­cor, have picked up eq­uity stakes in dif­fer­ent com­pa­nies. Klesch re­cently walked out of talks to buy a Tata Steel UK unit, while Stem­cor, which had a JV with Es­sar, is fac­ing its own liq­uid­ity prob­lems. “Nu­cor has fared com­par­a­tively bet­ter. Th­ese firms have a bet­ter grip on fi­nances as they have a rel­a­tively leaner size and hedge their con­tracts,” an an­a­lyst with a for­eign bro­ker­age said.

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