NEW DELHI/MUMBAI/BHUBANESHWAR: Naveen Jindal-led Jindal Steel and Power has emerged as a frontrunner to acquire the Indian assets of Stemcor Holdings, the cash-strapped independent steel trader, said three independent sources aware of the ongoing discussions. The two have also entered into an "exclusivity" arrangement recently for bilateral negotiations that will allow JSPL to conduct a detailed diligence of the company and its assets.
London-based Stemcor, one of Britain's largest private unlisted companies, with £5.1 billion of revenues in the last financial year, has appointed Goldman Sachs to find a buyer for its Indian operations, which include majority ownership in an iron ore mine, a pellet plant and a 230-km long slurry pipeline connecting the iron mines with the pellet factory in Odisha.According to the company's presentation to prospective investors, Stemcor has controlling stakes in Indian iron ore producer Aryan Mining & Trading, Brahmani River Pellets and a 10% equity, plus trading rights in Mideast Integrated Steel. The firm, controlled by the Oppenheimer family, is under pressure from its overseas lenders to monetise some of its assets to raise cash after it failed to refinance a $850-million syndicated loan that was due to mature last May.
According to industry officials, Stemcor produces 5 million metric tonnes of ore in a year, and has significantly higher reserves of over 100 million tonnes. The Rs 1,500-crore pellet plant also has a 4 MT capacity. Together, the Indian assets are likely to get an enterprise valuation of $750 million-$850 million. What however is still not clear is if JSPL will complete the negotiations on its own or team up with Stemcor's existing India management team. Stemcor is led by an Indophile managing director Mathew Stock, who built the India franchise ground up since the late 90s, including establishing its first manufacturing set-up worldwide.
"A change in control may impact the mining licences and other regulatory clearances, which is why JSPL may aid in the management buyout, but Stock has also reached out to several PE buyout funds and companies including Essar Steel as a fall-back option. Stemcor's India management team is eager to carry on with the local operations either on its own or by teaming up with a steel player," said an investment banker privy to the ongoing negotiations. But JSPL officials said they may finally go solo.
Ravi Uppal,JSPL's MD & CEO, declined to comment on any specific transaction. JSPL's official spokesperson also refused to comment.
JSPL's current capacities include a 3 million tonne per annum steel plant in Chhattisgarh and Odisha and a 4.5 million tonne/annum pellet plant, also in Odhisa. The company plans to invest close to Rs 24,000 crore by the end of 2014-15 to complete its ongoing expansion and start work on next phase of capacity addition, which will include new steel mills in Odisha's Angul. Upon completion of the current phase of expansion, JSPL's steel capacity will more than double to 7.5 million tonnes per annum.
Interestingly, Naveen Jindal's elder brother Sajjan, who heads JSW Steel — India's third-largest producer, has also reached out to Ralph Oppenheimer, MD, Stemcor, with an offer to trump his younger brother, which has led many to believe that Stemcor may eventually opt for a competitive bidding process to maximise value.
It has also been reported that Tata Steel has also been approached to evaluate the transaction. Tata Steel officials, however, told ET that nobody has approached them as yet. While the Tatas are building a 6 MT greenfield plant in Kalinganagar Odisha, JSW has been scouting for iron ore assets in India to stabilise its local operations.