Usha Martin hopes to close the sale of steel business to Tata in 3 months

Usha Martin expects to close the sale of its steel business to Tata Steel over the next 2-3 months. The Rs 45.20 billion deal would be used to repay the entire debt of Usha Martin.

"There has been zero sacrifice from any lender. We are paying them the full principal and the company is ensuring that there is no haircut,"  Rajeev Jhawar, managing director, told shareholders at the extraordinary general meeting (EGM) where approval was sought for the deal.

At June end, Usha Martin's debt stood at Rs 47 billion. The residual debt on the Usha Martin balance sheet would be just working capital of Rs 3-4 billion.

Rohit Nanda, chief financial officer said that the India business of the wire and wire ropes had an EBIDTA of Rs 2 billion and including the international business, it was at Rs 2.5 billion. The wire and wire ropes business accounted for around 40 per cent of Usha Martin.

The amount would be in an escrow account with the State Bank of India, which is the lead bank. 

"First all the lenders, both of the long term debt and working capital, will be paid off. The residual business, the wire ropes business, will have the working capital without any long-term debt and that should help us grow the business which is doing reasonably well and is expected to grow. Investments required in wire ropes business are significantly lower than what a steel asset requires," Jhawar explained. 

Tata Steel has already sought Competition Commission of India's (CCI) approval for the deal. Once the CCI approval is received, the process for transfer of mines would start, said Jhawar on the sidelines of the meeting. However, the entire process is expected to be completed in 2-3 months.

Apart from the steel manufacturing facility, the sale also includes an operative iron ore mine at Ghatkuri block, coal mine under development in Brinda and Sisai districts and captive power plants.

The steel facility is located on about 450 acres and has an installed capacity of one million tonnes. But Tata Steel has bought an additional 115 acres adjacent to it from UM Cables, a subsidiary of Usha Martin, which would probably help it ramp-up further.

Jhawar also said that on the long-term supply of steel for wire ropes, Usha Martin had agreed on a five-year supply contract with Tata Steel on fair market price. "Even today we are supplying from steel division to the rope division at market price so that would continue," he said.

G N Bajpai, chairman of the company, reiterated to shareholders of the company that the decision was taken because the company's balance sheet was stressed. "We have not been overwhelmed by the majority shareholders. Every stakeholder in this company has been taken care of," he said.

The Brij-Rajeev Jhawar promoter faction of Usha Martin holds 25.5 per cent in Usha Martin. Last month, the Basant-Prashant Jhawar faction, who have an equal shareholding, also said that they would be voting in favour of the deal. For the resolution to go through, 75 per cent of votes in favour are required.

Deal Street

• Transaction expected to close in 2-3 months
• Amount will be deposited in SBI’s escrow account
• Usha Martin’s balance sheet to have residual debt of Rs 3-4 billion