MMTC, Tata Steel Long Products stock rallies after Cabinet approves divestment of Neelachal Ispat Nigam at an enterprise value of Rs12,100cr

2 Feb 2022 , 11:07 AM

MMTC and Tata Steel Long Products stocks were in the fast lane on Wednesday after MMTC announced that the Union Cabinet has approved the highest bid of the Tata Steel-backed subsidiary for 93.71% of shares of Joint Venture partners of 4 CPSEs and 2 Odisha Govt State PSEs at the Bid Enterprise Value of Rs12,100cr.

Neelachal Ispat Nigma (NINL) is a joint venture of 4 CPSEs, namely MMTC, NMDC, BHEL, MECON and 2 Odisha Govt. PSUs, namely OMC and IPICOL. NINL has an integrated steel plant with a capacity of 1.1 MT, at Kalinganagar, Odisha. The company has been running in huge losses and the plant is closed since 30.3.2020. The company has huge debt and liabilities exceeding Rs6,600cr as of 31.3.2021, including huge overdue promoters (Rs 4116 cr.), Banks (Rs 1741 cr), other creditors and employees. The company has a negative net worth of Rs3487 cr and accumulated losses of Rs4228 cr. as of 31.3.2021.

The transaction was made through an open-market, competitive bidding process towards the enterprise value of the company, comprising the liabilities of the company as of 31.3.2021 and the 93.71% equity of the company held by the 6 selling PSE shareholders.

The transaction was executed through the extant consultative multi-layered decision mechanism-based procedure involving Inter-Ministerial Group (IMG), Core Group of Secretaries on Disinvestment (CGD) and the empowered Alternative Mechanism. Govt. of Odisha with their companies, OMC & IPICOL having a stake of 32.47%was also part of the decision-making at every stage.

Tata Steel Long Products emerged as H-1 bidder, whose bid has been accepted by the AM. Letter of Intent (LoI) is being issued to TSLP inviting them to sign the SPA. At this stage, 10% of the bid amount shall be paid by the successful bidder into the Escrow account.

On the closure date, shares will be transferred to the strategic buyer and the balance amount will be received to be utilized in the manner prescribed in the Waterfall agreement 27.10.2021 signed amongst the selling shareholdeRsPart-sale proceeds would be infused in the company to the extent of the liabilities which will be set off and the balance amount in the escrow account will be selling shareholders proportional to their shareholding.

This is the first instance of privatization of a public sector steel manufacturing enterprise in India. The success of the transaction is a win-win situation for all. The biggest advantage of privatization will be to the local economy of the region as the strategic buyer will be able to revive a closed plant, bring in modern technology, best managerial practices and make the infusion of fresh capital, which will help in augmenting the capacity of the plant.

The transaction is on a “going concern” basis and the employees of NINL will continue to be the employees of the company in terms of the Share Purchase Agreement (SPA), which binds the buyer to have a lock-in period of one year. The strategic buyer will also be bound to follow the terms of VRS applicable to CPSEs whenever such a decision is taken. Post-sale consideration will go towards settling the liabilities of the company, in the order provided in Waterfall Agreement.

At around 11.04 am, MMTC was trading at Rs58.05 per piece up by 1.4% on Sensex. Tata Steel Long Products stock performed at Rs756.05 higher by 2.9% on Sensex.