Go-ahead for sale of RINL’s forged wheel unit

The Core Group of Secretaries on Strategic Disinvestment has approved the sale of Rashtriya Ispat Nigam Ltd’s (RINL) forged wheel plant “as a going concern (unit sale) separately” and prior to the share sale transaction of the PSU steel-maker.

The move is likely to improve the steel-maker’s valuation ahead of disinvestment and possibly reduce its debt burden, giving the debt-ridden company some financial headroom.

RINL, the second largest PSU steel mill after SAIL in India, is on the Centre’s disinvestment radar. Its forged wheel unit is in Uttar Pradesh with an installed production capacity of 100,000 wheels (for railway wagons).

According to the minutes of the meeting of the Core Group of Secretaries on Strategic Disinvestment, reviewed by businessline, the sale of the forged wheel unit “...would likely improve RINL’s operations and make it a going concern. This would facilitate the disinvestment process and may realise a better price for the entity, as and when the process is taken forward”.

The sale of about 24 acres of RINL’s non-core surplus freehold land has also been approved.

Financial constraints, lack of expertise

The forged wheel plant has already seen an investment of over ₹2,250 crore, say officials.

Although an initial order of around 2,000 wheels was delivered in FY23, “the plant is unable to operate at full capacity due to several reasons”, including financial, and lack of experience in forging operations, among others, according to the minutes.

Another ₹500 crore-odd investment is needed to acquire an oxygen plant to produce operational crude steel.

It was explained during the meeting, held on April 14, that RINL has “little scope for raising further resources” and hence the monetisation of 24 acres of non-core surplus land at Visakhapatnam is one of the best available options.

The company has eroded its net worth to ₹199 crore, with a high debt-to-EBITDA ratio, thereby making bank financing difficult.

“Once operational, the (oxygen) plant will boost crude steel production and lower costs, thereby supporting RINL’s continued existence as a going concern. It was suggested that M/o [ministry of] Steel should closely monitor the early commissioning/ operationalisation of the plant,” the minutes said.

A senior government source at the meeting noted that proceeds from the sale of the forged wheel plant and surplus land may be utilised for retiring ₹1,165 crore debt of the forged wheel unit, or to acquire an oxygen plant, or for meeting other operating expenses (including purchase of raw materials), or making operational the third blast furnace (which has been idle for sometime).

Also read:Budget 2023: Disinvestment losing relevance?

The Cabinet Committee on Economic Affairs (CCEA) had on January 27, 2021, granted ‘in-principle’ approval for disinvestment of the government’s shareholding in RINL, along with RINL’s stake in its subsidiaries and joint ventures.

An inter-ministerial group had considered options such as entering into an operation and maintenancecontract and including the forged wheel plant as part of RINL’s disinvestment package. The option of de-merger was also considered, but these were considered time-consuming and unviable towards reducing the existing debt of the company.

“Therefore, the option of slump sale, which could relieve RINL’s debt burden, was recommended,” the minutes stated.

On the sale of land, DIPAM recommended strategic disinvestment ”in the same way as MTNL/BSNL land parcels, as per the asset monetisation framework (earlier approved).”

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