From JSW to Liberty House, five bidders for Usha Martin's steel business

Five companies have expressed interest in buying Usha Martin’s steel business.

The five — JSW Steel, Tata Steel, Liberty House, Kalyani and Vedanta — have signed non-disclosure agreements (NDAs) in this regard, while they do their due-diligence. Once the offers are made, it would be evaluated by an independent committee set up by Usha Martin’s board of directors. 

Rajeev Jhawar, managing director at Usha Martin, told shareholders at the company's annual general meeting that the entire process might take some time. Once the offers were received, he said, the board would evaluate whether the remaining business was sustainable before taking a final decision. 

Each of the businesses (steel, wire and wire ropes) required capital to expand, he added. Usha Martin's net debt as on end-March was Rs 46 billion. “Nobody likes to sell any business. The board of directors looked at various ways of deleveraging the balance sheet. One option was definitely divesting one of the assets and the steel business is currently being taken through the process,” explained Jhawar, to queries from shareholders on whether the divestment was necessary. 

Usha Martin was earlier looking to sell its wire and wire ropes business. However, a change in market conditions prompted the company to look at sale of the steel business.

In June, Arpwood Capital and SBI Capital Markets were appointed to find buyers. Around the same time, the board set up an independent committee to evaluate any proposals and oversee the process of sale. 

G N Bajpai, the company's chairman, also explained to shareholders the context of the proposed divestment. “All steel companies went through a down-cycle. Most have landed in the National Company Law Tribunal. Your company is still afloat. Given the level of debt, the board of directors felt one of the ways to reduce this was to sell one of the assets. The board will take a decision keeping the best interest of all stakeholders in mind," he said.

Usha Martin has a one-million tonne a year unit at Jamshedpur. Around a third of its production is used in-house by the wire and wire ropes division. 

Each of the businesses is doing well, said Jhawar. Demand for wire ropes had improved after crude oil prices went up. "Demand has improved both in India and in the international market. Wire rope Ebitda (operating earnings) has improved 20-25 per cent as compared to last year. In the next 12-24 months, the wire ropes business looks to be on a stronger wicket."

In the first quarter of this financial year, sales from the steel business were close to Rs 10.5 billion; that from wire and wire ropes was Rs 4.4 billion. Profit before tax from steel was Rs 1.12 billion of a total of nearly Rs 1.7 billion.