The Hindu Business Line : Rashtriya Ispat mulls merger with NMDC

Kolkata, May 30 Rashtriya Ispat Nigam Ltd (RINL), which owns and runs Vizag Steel Plant, is mulling its merger with National Mineral Development Corporation (NMDC), the major producer of iron ore.

Giving this information here on Friday, Mr P. K. Bishnoi, CMD of RINL, said, “The merger proposal, still at a conceptual stage, is being discussed informally with NMDC as well as the Steel Ministry; after all, both the organisations are under the same Ministry.” Asked about the reaction of the Ministry, Mr Bishnoi replied, “The informal proposal evokes informal reaction”.

Explaining the rationale behind the merger, Mr Bishnoi pointed out that RINL needed raw material security, particularly in iron ore, while NMDC was planning to set up a steel plant. “It will therefore make sense if we join hands together,” he observed.

The merged entity, as he pointed out, could produce by 2020 an estimated 40-50 million tonnes of iron ore and 20-25 million tonnes of steel. Financially also, both the organisations will be fairly strong. “It will be a force to reckon with in India and together we can explore opportunities abroad also”, he said.

The idea of RINL-NMDC merger cropped up after the earlier proposal to have a steel plant in Chhattisgarh, as a joint venture between RINL, SAIL and NMDC, failed to take off, he said.

Mineral security fund

Mr Bishnoi felt that the Union Government should consider setting up a sovereign fund with corpus of at least $50 billion to facilitate strategic investments abroad, particularly for achieving mineral security.

International Coal Ventures Ltd, a joint venture between RINL, SAIL, Coal India, NTPC and NMDC, for acquiring coal assets abroad, as he pointed out, would stand to benefit from such a fund. ICVL, as he indicated, had identified mines in Mozambique, Australia and US.

As many as 16 international investment bankers had responded to the bid invited in this regard. The selected banker would advise as to how to go about it. The problems in such investments were many such as high cost, intense competition and procedural bottlenecks. The External Affairs Ministry must be involved in such investments, he said.

Good performance

In 2007-08, RINL posted a profit after tax of Rs 1,943 crore (Rs 1,363 crore in 2006-07), thus registering 42 per cent growth. “This was achieved despite lower production and steep rise in input costs. The dip in production was caused by capital repairs in blast furnaces, more maintenance of ageing equipment, difficulties in getting regular supplies of key raw materials such as iron ore and coal while the raw material costs jumped from 30 per cent (lime stone) to hard coking coal (more than 200 per cent). He attributed the rise in profits to higher sales of value-added items which accounted for 60 per cent of the total production.

Mr Bishnoi made it clear that RINL’s production in next two to three years would remain flat due to massive revamp work that would be undertaken in blast furnace, converter, sinter and power plants. “There may be even a dip in production,” he said. However, there was a proposal to enhance the capacity in stages to 16 million tonnes by 2020, he added.

More Stories on : Mergers & Acquisitions | Steel | Minerals

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