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Aditya Birla Group Plans To Acquire Stemcor’S India Assets

Date 12-November-2014
Subject Aditya Birla Group Plans To Acquire Stemcor’S India Assets

When contacted a Birla Group spokesperson said the group does not comment on market speculation. Responding to ET's detailed questionnaire, Charles Armistead, spokesperson for Stemcor in London said, though no formal sell off exercise is currently on but the company continues to receive interest from strategic buyers.

"The regulatory environment in Odisha is currently quite complicated so our discussions with third parties are on hold until the situation is resolved. There is no timeline attached to the sale of our Indian assets. All of that said, they are very valuable assets and continue to attract interest. We don't comment on any specific approaches or dialogue."

Interestingly, unlike the previous round, Birlas are on their own this time around and have decided not to partner with JSW. A Essel-JSW consortium had previously bid for the Stemcor's mines and pellet unit. JSW, sources say, is no longer keen to pursue the transaction. Morgan Stanley is advising the Birlas. JSW's withdrawal stems from the fact that Odhisa's metals and mining sector has been severely hamstrung following a series of regulatory and legal interventions resulting in bans.

The unpromising regulatory landscape had resulted in conservative bids in the previous round from potential suitors including Kumar Birla and the billionaire Jindal brothers - Sajjan and Naveen. JSW was always keen on Stemcor's mines while the Birla interest was focused on the pellet unit. Investment bankers felt, the differences in valuations was another reason why the sale process was put on hold earlier in March. Since then, approaches were made to Gautam Adani and local mining baron B Prabhakaran of Thriveni Earthmovers, add sources.

"In a worse-case scenario, Birlas will only get to retain a large pellet plant. In a best case scenario, they also get access to iron ore mines. With a pellet plant they can also bargain with the Odhisa government to reopen Essel's own mines citing value-addition in the state," said a senior source involved directly in the talks, explaining the Birla rationale.

Transfer of mining lease and shareholding under Rule 37 of the Mines and Minerals Development and Regulation (MMDR) Act requires state government consent.

For long, Essel has been exploring diversification from a pure play mining entity to downstream value addition with a foray into pellet making. Pellets are small spheres that are used as raw material for blast furnaces. They typically contain 67-72% Fe (Iron) content. Stemcor's plant is also very close to Essel's own mines. Moreover, industry experts say large amount of iron ore fines - both from Essel's and other 3rd party operators -- are lying idle for the lack of a beneficiation or pellet plant in the area. Being more efficient and scarce, pellets today command a huge premium over iron ore lumps as sponge iron makers prefer to use it as a substitute.

"For integrated steel players like Tata, JSW, JSPL, a stand-alone pellet plant has limited attraction as they already have significant capacity. But for a miner like Essel who is keen to show value add and reopen its existing mines, Stemcor offers a unique opportunity," added another official.

But owning significant capacity also comes with risks. One has to rely on export markets, but with the steel industry lobbying to get the current 2.5% export duty on pellets hiked to the 30% that ore exports attract, long term viability of the business could also come under pressure, warn analysts.

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