Stemcor set to buy 10% in Ispat Industries

The deal is likely to be valued at Rs 250-300 crore.

Stemcor Holdings Ltd, London (Stemcor), one of the largest steel traders, is picking up a 10 per cent stake in debt-ridden Ispat Industries.

Ispat Industries, which has debts of around Rs 6,500 crore, today said it had entered into a strategic co-operation agreement to preferentially allot up to 10 per cent equity to Stemcor.

“At current prices, the investment is attractive. We have not really finalised anything,” Stemcor Director, Middle East and South Asia, Matthew Stock, said. The deal is likely to be valued at Rs 250-300 crore. Shares of Ispat Industries today closed 2.87 per cent down at Rs 20.30 on the National Stock Exchange. Apart from the equity, Stemcor will be investing in arranging finance, supply and erecting a one-million tonne coke oven plant, being set up at Ispat’s Dolvi complex by Amba River Coke Ltd, a joint venture between Ispat and Stemcor.

“We have already finalised the coke project. The investment in the project is about Rs 1,100 crore,” Stock said.

According to the pact with Ispat, Stemcor would also invest, arrange finance, supply and erect a three-million tonne pellet plant at Dolvi and a 110-mega watts power plant. The power plant is being implemented by Ispat Energy.

The three projects, which would cost more than Rs 2,000 crore, are aimed at bringing down Ispat’s cost of production, which is high due to lack of captive raw material resources. “The power and pellet projects would be 24:76 joint ventures between Ispat and Stemcor,” a lender said.

“It is a good company, but their cost of production is high,” Stock explained. Ispat would like to finalise the deal over the next month. “Lenders are encouraging the promoters to bring in equity. This deal will have to be approved by lenders, after the Ispat board approves,” he added.

Last week, the lenders had met and decided to bring a strategic partner into the company. Apart from this, Ispat is looking to mitigate its debt problem by cashing out from its real estate in Mumbai. Also, Stemcor or one of its subsidiaries would provide $75 million working capital to Ispat under an export securitisation programme. According to an Ispat release, further potential areas of co-operation also include development of port facilities, material handling and pan-India service centres/stockholding operation.

For Stemcor, this would be a strategic partnership. “We have an existing relationship with Ispat. We are supplying raw material and buying finished products from them,” Stock said.