Top Indian metal companies flock to Stemcor's asset sale

Tatas, Jindals likely to make aggressive bids for estimated $1.3-bn assets

Some of India’s top metal companies, including the Tatas, the Jindal brothers and the Ruias of Essar, made non-binding bids last week for the iron ore assets of London-based Stemcor, say bankers.

These assets are estimated to cost close to $1.3 billion. The Vedanta group and the Birlas are also in the fray but might not make aggressive bids.

How many bidders?
Goldman Sachs, running the auction on behalf of Stemcor, is in the process of shortlisting the bidders. It will soon invite financial bids, said a source directly involved. The banker said the number of bidders would come down once the financial bids are called.

STEMCOR ASSETS FOR SALE

• Mideast Integrated Steel Ltd: 10% equity and trading rights
• Aryan Mining & Trading Corporation: Majority ownership of iron ore mine
• Brahmani River Pellets Ltd: Majority ownership of iron ore pellet plant

Bidders:
Tata Steel, JSW and JSPL (Joint bid), Vedanta Group, Aditya Birla Group, Essar group

Stemcor is selling its iron ore mines and a pellet plant in Odisha, as it wants to repay its $1.2 billion of debt in the backdrop of sagging sales.

Bankers say the multiple bids for Stemcor’s assets shows Indian companies are interested in investing in mining assets, in spite of the present slowdown in the industry.

“It would be, however, interesting to see how many companies actually bid in the final auction process,” one said.

The Tatas and Jindals are expected to make aggressive bids, as both companies have an immediate requirement for iron ore mines for their plants in operation in the same region.

Tata’s new plant at Kalinganagar is nearby and Sajja Jindal’s JSW has one operating at low capapcity, due to the production of ore having stopped in Karnataka and Goa.

Similarly, Jindal Steel & Power’s production is suffering due to ore scarcity. It finds the Stemcor assets very attractive and plans to jointly bid for these with JSW Steel.

‘Geographical advantage’
JSPL has said the assets have a geographical advantage and huge long-term potential. Its 4.5-million tonne pellet plant-II in Barbil, Odisha, is expected to be commissioned by March next year; it would cater to the iron ore requirements of the 2-mt plant in Angul. JSW is looking to sell its US pipemaking assets to invest more in India.

In an earlier interview to this paper, Vedanta chairman Anil Agarwal had said the group was scouting for more energy and metal assets across India.

This included coal, oil and iron ore assets. The Aditya Birla Group is also hunting for metal assets if the valuation is right, said a group insider, without commenting on the Stemcor sale. Yet, the Birlas and Vedanta are not expected to make financially aggressive bids, said a metal analyst.

The Essar group already has an operational pellet plant at Paradeep in Odisha and sees synergistic benefits if it buys the Stemcor mine and plant. But if there is a bidding war, the group will prefer to save its cash, it appears.