NMDC appoints Deloitte to study viability of merger with KIOCL

PwC had recommended merger of both PSUs as a viable option

The steel ministry’s proposal to merge KIOCL Limited, the 100 per cent export-oriented pellet manufacturer, with NMDC Limited, India’s largest public sector miner is gaining further momentum. The board of NMDC has appointed a global consultancy firm Deloitte Touche Tohamatsu to study the viability of a merger between the two public sector units.

A similar study, conducted by another global consultancy firm PwC on behalf of KIOCL, had recommended the merger of the two companies as a viable option. The Bengaluru-based pellet maker and exporter is said to be in favour of the merger with NMDC. The company, struggling for survival over the last decade, buys iron ore from NMDC’s mines in Chhattisgarh to feed its pellet plant in Mangaluru.

“The merger between the two public sector units under the administrative control of the steel ministry will be a win-win proposal for both. A team of officials from Deloitte visited the head office of KIOCL last month and a report is expected to be submitted very soon,” sources told Business Standard.

The team from Deloitte visited the head office of KIOCL in Bengaluru during February and interacted with officials in the finance and accounts departments. It elicited details on the manpower and assets of KIOCL, the sources said.

NMDC officials were unavailable for comments. An email query sent to the chairman’s office went unanswered.

While confirming the development, a member of the study team from Deloitte said he would not like to comment on the findings of the study. “As we have a confidentiality agreement with NMDC, I cannot disclose the findings. We will submit our report to the NMDC management,” Vishal Kashyap of Deloitte said.

If Deloitte also recommends merger then boards of both the companies have to approve the merger proposal. The proposal needs to be approved by the shareholders of both the companies also. Thereafter, the ministry of steel would go to the Cabinet for final approval, they added.

The merger with NMDC will be a viable option for KIOCL, as it is finding difficulty in sourcing iron ore. As there is a ban on export of iron ore from Karnataka, the company is sourcing raw material from Chhattisgarh at a high cost.

NMDC is in the process of ramping up iron-ore production to 50 million tonnes (mt) a year by 2018 from 30 mt a year at present. It would benefit from KIOCL in terms of beneficiation and pelletisation. It has set up a 1.2 mt per annum pellet plant and 1.89 mt per annum beneficiation plant at Donimalai in Karnataka and has awarded the operation and maintenance contract to KIOCL recently.

KIOCL, which suspended pellet exports in 2011, resumed its presence in the global market last year, shipping high-grade pellets to China. KIOCL is known as high quality maker of pellets, which are in big demand in the overseas markets.

KIOCL has four decades of experience in operating a beneficiation plant of 7.5 mt a year and a pellet plant of 3.5 mt a year.

In 2006, KIOCL had to shut down its pellet plant at Kudremukh in Karnataka's Chikkamagaluru district following a Supreme Court direction. The company has a cash reserve in the order of Rs 2,000 crore and is looking for mining options in Andhra Pradesh and Odisha.