New Delhi, February 19 Tata Steel Long Products is likely to close the acquisition of Neelachal Ispat Nigam Ltd (NINL) “before the end of this financial year”. The pPrent company, Tata Steel will front end the acquisition financing.
In January, the Tata Steel arm won a bid to acquire a majority stake in NINL at an enterprise value of ₹12,100 crore.
Incidentally, Tata Steel Long Products’ board has approved raising up to ₹13,300 crore via issuing non-convertible redeemable preference shares on a private placement basis to its parent firm Tata Steel. It has also accepted a letter of award (LoA) to acquire a 93.71 per cent stake in NINL.
Tata Steel Long Products emerges highest bidder for Neelachal Ispat NigamTSLP emerged the highest bidder for 93.71% of shares in the joint venture of 4 CPSEs and 2 Odisha government PSUs
Financing (by Tata Steel which owns over 74 per cent of Tata Steel Long Products) will largely be funded through internal accruals and some short-term bridge funding, Koushik Chatterjee, CFO, Tata Steel said during the company’s recent analyst conference call.
“With the NINL acquisition, I don’t expect the credit matrices of the company moving much at the end of the financial year. And we would continue to deleverage (Tata Steel’s debt) during the fourth quarter and beyond,” he told analysts.
Rationale behind acquisition
Explaining the acquisition, Chatterjee said that NINL is an integrated facility. It has iron ore available without the premium that the company will have to pay if it bid for a new iron ore mine.
“So if you look at the cost base and the size that it can come to, it can certainly produce long products at a much cheaper rate than, let’s say, Tata Steel Long Products is doing today,” he said.
A lot of the infrastructure is already in place, and unlike a greenfield site, NINL’s site has a road, with railway lines, and many logistics-related infrastructure are already in place. NINL facility also has the advantage of being next door to Kalinganagar, where Tatas have “already built a lot of infrastructure”, which can be “shared with Neelachal”.
“So we will obviously need to look at transfer pricing and things like that. But overall, it will be a very, very cost efficient and a world class site, the way we see it,” Chatterjee said during the call.
According to him, the total enterprise value (of NINL acquisition) is ₹12,100 crore; of which around ₹6,600 crore is essentially going towards repayment for lenders, operational creditors, employee backlog payments, and so on.
Chatterjee said it would be Tata Steel, which will be taking on a lot of the financing, and it will be structured in a manner such that NINL gets the capital to invest, “not necessarily burdening it on Tata Steel Long Products”.
“The way we are looking at it from a funding point of view is around 50 per cent of the funding to be done through internal accruals of Tata Steel and 50 per cent of bridge loans, which we will aim to prepay over the next few quarters,” the CFO added.