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NMDC divestment hinges on merger proposal with steelmaker RINL

13th February 2017

By: Ajoy K Das

Creamer Media Correspondent

     

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KOLKATA (miningweekly.com) – The Indian government’s plans for the strategic disinvestment in iron-ore miner NMDC will, most likely, hinge on a final decision on the proposed merger of NMDC with steel producer Rashtriya Ispat Nigam Limited (RINL).

According to a senior government official, there are two proposals before the government relating to these government-owned and -managed companies.

The first proposal is that NMDC divest a majority equity holding in its proposed steel mill that is currently under construction at Nagarnar, in the central Indian province of Chhattisgarh.

Secondly, the government is considering the merger of NMDC with RINL, as the latter does not have any captive source of iron-ore and is dependent on merchant purchase for its steel mill located at Vishakhapatnam, in the southern Indian province of Tamil Nadu.

The government official said the two proposals would need to be aligned before any final decision on strategic divestment in NMDC could be taken.

In fact, quoting from the recently unveiled draft national steel policy, he said government-owned steel and mining companies needed to compete with private integrated steel players and cater to the requirement of small end-users, while also being globally competitive. To provide economies of scale, government-owned companies would need to focus on core competencies and divest noncore activities.

Under this policy framework, NMDC would be required to divest its holding in the upcoming steel mill project and focus on its core business of iron-ore mining.

However, the official also pointed out that the merger of NMDC and RINL would ensure forward and backward integration respectively for the two companies. It would lead to steelmaking capacity consolidation for RINL along with securing access to NMDC’s iron-ore mines.

In the case of NMDC, it would not lead to fragmentation of its steelmaking plans through piecemeal divestment.

NMDC produces around 30-million tonnes a year of iron-ore from its mines at Chhattisgarh, while RINL operates a 6.3-million-tonne-a-year standalone steel mill, without any captive iron-ore mine.

The government has for the last several years been planning to divest a minority holding in RINL in which it currently holds 100% equity stake.

According to an official in the Steel Ministry, given the flood of steel imports into the country, any initial public offer to dilute government's stake in RINL is not expected to fetch acceptable valuations.

Under such capital market conditions, a merger of the steel producer and the iron-ore miner would be more acceptable to the government while achieving integration between the two merged entities, the official added.

The move to force NMDC to privatise its estimated $2.5-billion Nagarnar steel mill project is also facing political opposition at the provincial level.

Various national trade unions and even a section of the Chhattisgarh government are opposed to the idea of NMDC hiving off its steel project and offering a majority equity stake to a private investor.

Government officials said pushing through the NMDC-RINL merger would also circumvent the brewing political storm.

Edited by Esmarie Iannucci
Creamer Media Senior Deputy Editor: Australasia

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