China's Tidfore to pick up stake in Uttam Galva

The deal will give Tidfore access to the Indian market

Miglani family-controlled Uttam Galva Metallics has signed an investment agreement of $150 million with China’s Tidfore Heavy Equipment Group Co. Limited, a deal galvanised by South Korean steel major Posco.

“The investment will be in the form of equity for Uttam Galva Metallics, which is expanding its Wardha unit with Posco. This deal will give Tidfore access to the Indian market and it would be great for India, too, as it brings an infrastructure giant to the country. Our objective is to work together to give them more opportunities in India,” he said.

The agreement was signed last week in China in the presence of Sun Yin Sheng, secretary, Hunan State, senior officials of Posco and State Bank of India, the lead lender. Ankit Miglani, a promoter-director of Uttam Galva Metallics, confirmed the development.

The Miglani family will retain majority in the unlisted entity, while Tidfore and Posco were likely to have an equal stake. The exact equity structure would, however, emerge once the feasibility study was completed. Posco’s equity would be in the form of equipment. Last December, Uttam Galva had signed a memorandum of understanding (MoU) for expansion with Posco but the group got mired in debt problems and the project was hanging fire. Uttam Galva Metallics has a capacity of 0.5 million tonnes (mt) and the plan was to increase capacity to 1.5 mt. Typically, the cost of setting up one mt of steel costs around $1 billion.

As on March 31, Uttam Galva Metallics had a debt of Rs 3,000 crore and bankers asked the promoters to bring in an investor for additional debt. That’s when Posco, which had waited for a decade to set up a mega steel plant in Odisha and then officially put it on hold, stepped in to salvage the project.

“Posco introduced us to Tidfore; they have arranged the entire relationship,” said Miglani. As a result of the expansion, the Wardha Steel Complex will become an integrated steel unit, with a capacity of 1.5 mt per annum.

The unit would produce special ultra-thin hot-rolled coils with technology from Posco. Before Uttam Galva Metallics, Posco had signed an MoU with Shree Uttam Steel and Power for another project.

Once the feasibility report of this project is done, the group could take up Shree Uttam Steel and Power. Tidfore, which wants to be a part of the Make In India programme, is understood to have shown some interest in that project as well.

There are projects lined up under other Uttam Group companies like Uttam Value Steels, but bankers have asked the promoters to induct strategic investor here, too. As of March 2016, Uttam Value Steels had a negative net worth of Rs 214 crore; its total debt was at Rs 1,255.8 crore and loss at Rs 520 crore, against net sales of Rs 3,742.9 crore. On May 30, Uttam Value Steels informed stock exchanges that the accumulated losses had exceeded its net worth and, hence, would have to be referred to the Board for Industrial and Financial Reconstruction.

Separate deals are being worked out for Uttam Value Steels and the flagship company, Uttam Galva Steels, in which ArcelorMittal has a 33 per cent stake. Uttam Galva Steels had a net worth of Rs 433.4 crore at the end of March 2016. The company’s total debt was Rs 3,739.4 crore and net loss was at Rs 1,555.4 crore, against net sales of Rs 8,337.2 crore.

“We are trying to solve one problem at a time,” said Miglani.
HOW THE DEAL WAS GALVANISED

May 2015: Posco puts mega project in Odisha on hold

Aug 2015: Posco signs MoU with Shree Uttam Steel and Power

Dec 2015: Posco signs MoU with Uttam Galva  for Wardha expansion

Jun 2016: Posco introduces Tidfore to Uttam Group

Aug 2016: Uttam Galva  signed investment pact with Tidfore in the presence of Posco & SBI