ArcelorMittal will become the co-promoter of the Rs 4,500 crore Uttam Galva Steels, marking the world’s largest steelmaker’s entry into the Indian steel space. The Miglani family currently owns 40.71 per cent of Uttam Galva.
Both promoters would hold an equal stake in the company, Uttam Galva said in a statement to the Bombay Stock Exchange this evening after its board met today to approve the “co-promotion agreement” with Netherlands BV, a subsidiary of ArcellorMittal owned by Lakshmi Mittal.
According to the agreement, ArcelorMittal will make a mandatory open offer for 20 per cent. Financial institutions hold 39.26 per cent in the company and the remaining shareholding is with the public.
The market seemed to have had a whiff of the deal, because the Uttam Galva stock today closed at a 52-week high of Rs 113.70 — up 10 per cent — on the BSE. It has gone up 87 per cent in the past one month, when the benchmark index fell 1 per cent.
The promoters have pledged 67.19 per cent of their shares — up from 39.74 per cent in the December quarter. Analysts said this made the Miglani family’s position vulnerable and prompted them to okay ArcelorMittal’s entry. The company had a consolidated debt of Rs 1,208.59 crore in 2007-08 (the latest such figures available).
In the year ending March 2009, Uttam Galva’s net sales went up to Rs 4,509.70 crore from Rs 3,155 crore in the corresponding period of the previous year. The company’s profit dropped to Rs 100.17 crore from Rs 124 crore in the same period.
Under the terms of the agreement, ArcelorMittal Netherlands and the Indian promoters will have the right to nominate an equal number of directors. ArcelorMittal will also enjoy veto rights on a host of matters, the details of which were not disclosed. Ankit Miglani, director (commercial) of Uttam Galva Steels, was not available for comment. ArcelorMittal's Indian officials declined to comment.
The move would give ArcelorMittal a toehold in the Indian steel market that the company has been trying to enter for a long time.
The company’s greenfield projects in Orissa and Jharkhand was going nowhere owing to regulatory and government hurdles and problems with land acquisition.
ArcelorMittal had signed an agreement with the Jharkhand government in 2005 and with the Orissa government in 2006 to set up steel plants with a combined capacity of 12 million tonnes.
Analysts said Uttam Galva would give ArcelorMittal a strong foothold in the western India market. The Indian company is the largest cold rolled and galvanized steelmaker in western India with a capacity to produce 750,000 tonnes a year of galvanised steel and 1 million tonnes a year of hot and cold rolled coils at its manufacturing facility at Khopoli in Maharashtra. The company is setting up another facility in the state with an investment of around Rs 9,000 crore.
The company procures hot rolled steel and processes it into cold rolled and further into galvanised and colour coated coils. In galvanised coils, it specialises in making ultra thin sheets, which could be as low as 0.13mm thickness.
More than 70 per cent of the company’s products are exported to over 142 countries and it has a customer base in many advanced markets such as Australia, France, Germany, Greece, UK and the US. In the Indian market, the company has established itself as a major player of galvanised coils and sheets to the construction industry.