The Hindu : Business : Essar Steel to acquire Shree Precoated’s assets

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Essar Steel to acquire Shree Precoated’s assets

Special Correspondent

‘It is not a takeover but purchase of an asset as a slump sale’

— PHOTO: PAUL NORONHA

STRATEGIC FIT: J. Mehra (right), CEO, Essar Steel Business Group, and Vikram Amin, Director-Marketing, at a press conference in Mumbai on Tuesday.

MUMBAI: Essar Steel Ltd. (ESL) has entered into a definitive business transfer agreement with Shree Precoated Steels Ltd. (SPSL) to acquire the entire assets and steel business of the company for an undisclosed sum.

According to the agreement, the assets to be transferred include the plant comprising colour coating line (capacity of four lakh tonnes annually), cold rolling mill six lakh tpa), galvanizing line (five lakh tpa) and pickling line (6.50 lakh tpa).

ESL will take over the outstanding bank/institutional debt and net current assets of the company. The SPSL plant is located at Sanaswadi near Pune in Maharashtra.

ESL Director (Finance) Mahadev Iyer said it was not a takeover but the purchase of an asset as a slump sale. “The business transfer agreement includes the total of the fixed as well as current assets and liabilities. The fixed assets amount to around Rs. 600 crore and the long-term debt was around Rs. 175 crore. We will announce the net purchase consideration later.” He said SPSL would add Rs. 2,600 crore to ESL’s topline and around Rs. 175-200 crore to its operating profit in the next few years.

Integrated facilities

On completion of the acquisition, ESL will have the largest cold rolling capacity (two million tpa), the largest colour coating facilities (four lakh tpa), largest galvanizing capacity (one million tpa) and pickling capacity (2.2 million tpa).

This acquisition will also make ESL the steel plant with integrated facilities from heavy plates, hot rolling, cold rolling, galvanizing and colour coating.

It will now be able to provide end-to-end services and will support ESL’s efforts to increase the share of value added products in this portfolio and fits ESL’s expansion plans of having manufacturing facilities in different geographies.

As part of its expansion plans at Hazira, ESL’s hot rolled capacity is being expanded from 4.5 million tpa to 9.6 million tpa by the first quarter of 2010-11. It is in the process of setting up a 8-million tpa pelletisation plant at Visakhapatnam and a 12-million tpa pelletisation plant at Paradip in Orissa. These plants would come up in the first quarter next year.

Addressing the media here, Essar Steel business Group CEO J. Mehra said, “this acquisition is a strategic fit for our steel business as this gives us leadership position in many product segments and also gives us a footprint across different product segments. It is an important acquisition because after our expansion, we would need channels for marketing out steel and so it fits in well. There is also a cost advantage, as SPSL will get an assured supply of raw material from ESL.”

The demand for colour coated steel in the domestic market was growing at 30 per cent while in the export market it was growing at 12 per cent, said Mr. Mehra. The capacity of Algoma, Canada, which was acquired earlier, would go to four million tpa by the end of the year and there were plans to go up to five million tpa, he said. In a bid to ensure raw material security, ESL is also scouting for coal mines in Australia.

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