Mesco Steel says no decision yet on JV with Posco

Industry observers say no company will be willing to have a minority stake after sharing technology

Mesco Steel, which has entered into an understanding with Posco to conduct a study regarding installing a patented technology equipment at its Kalinganagar plant, said no decision has been taken on a possible joint venture with the Korean firm to operationalise the proposed steel making unit.

“I cannot talk about it (shareholding pattern) as nothing has been finalised yet,” said Reeta Singh, managing director with Mesco Steel.

Posco officials were not available for comment regarding the MoU with Mesco.

The proposed study will verify whether it would be feasible to relocate one of the Finex technology steelmaking equipment of Posco from Korea to Kalinganagar plant premises of Mesco Steel, which produces pig iron and is in the process of expanding its operation. If successful, the study will lead to formation of a JV between the two companies to operationalise the 0.6 million tonne per annum Finex plant at Kalinganagar. It may be noted Posco has three such Finex units in Korea and the one identified for relocation has outlived its plant life.

However, the issue of majority shareholding will continue to pose threat to the project as a similar attempt by Posco earlier could not make any headway. Posco had entered into a pact with Steel Authority of India Ltd (SAIL) in 2007 and again in 2009 to install a Finex technology plant in the latter’s Bokaro steel plant premises. The JV project with SAIL envisaged 3 million tonne steel capacity at an investment of Rs 16,000 crore. The project, however, could not progress with both parties bickering over majority shareholding and the MoU expired in 2011.

Industry observers and analysts said no company would be willing to have a minority stake after sharing technology. “The Mesco-Posco deal is not for sourcing of funds only unlike the case of Bhushan Steel and (Japanese steelmaker) Sumitomo deal. Since Posco is willing to share its technology, it is likely be keen on having majority share in the proposed JV with Mesco,” said Gunjan Agarwal, senior analyst with CRU, a business intelligence firm.

Mesco has been in search of fresh capital for expanding its 1.2 million tonne pig iron plant at Kalinganagar to 3.5 million tonne a year integrated steel making facility. The company was looking to raise around $400 million via external commercial borrowings.

Partnering with Posco would help Mesco to produce steel at a lower cost because Finex technology uses iron ore fines, which is being exported due to lack of use in the country and also normal coal which is available abundantly in the state. Earlier Mesco, which has blast furnace but no coke making facility, was in talks with Jindal Stainless Steel (JSL) to produce steel jointly by using the latter’s coke making facility. But JSL did not accept the offer of Mesco. For Posco, collaboration with Mesco would give it access to latter’s captive iron ore mine and existing land at Kalinganagar industrial complex as it is yet to make any significant progress on its proposed 12 million tonne steel plant at Paradip because it is still awaiting allotment of captive mine and clearances to get ownership of land.