London-based trading group Stemcor has started a competitive tender process to find a buyer of its Indian iron ore assets, banking sources told Platts Tuesday.
The company has rejected management-led offers involving Jindal Steel & Power, for the iron ore assets and Stemcor India, and an exclusivity period between the parties lapsed last week. Naveen Jindal of JSW, a sister company of JSPL, was vocal in his opposition of this deal, suggesting he could offer a higher valuation for the assets.
Stemcor is now seeking interest from prospective suitors for the mine and pelletizing plant – JSPL and JSW are still understood to be in the process, and Tata Steel and Essar have submitted expressions of interest, the sources said. One said the tender process could complete by September, though another said this was unlikely given the intricacies of the deal.
For Tata the cost of buying an already existing plant may be cheaper than constructing anew, one added. Tata paid substantial amounts of money to build a pelletizing plant in Jamshedpur, and is investigating another to feed the greenfield steelmaking plant it is constructing in Kalinganagar, Odisha. “For Tata buying a plant rather than building one makes a lot of sense,” one source said.
Another said the timing of the sale process is poor for Stemcor, given the economic climate in India. Many big steelmaking groups have constructed new plants in the country, which they now have to operate at 50-60% because of weak demand. JSPL, which is seen as cash-rich with a strong balance sheet, is perhaps one of the strongest suitors, the source added. A competitive tender process may help it to realise best value, however. “I do not think you will get aggressive bids going in because there is no money in the country,” the source continued.
Stemcor had been mulling exiting its Indian business for a few years now, though this was opposed by the management team and the Oppenheimer family, one banker with knowledge of the deal said.
The company’s hand was forced, however, when it defaulted on a revolving credit facility in May. Goldman Sachs advised it to monetise its Indian assets, as economic weakness in Europe would weigh on the value of its assets in the region.
Stemcor recently submitted a turnaround plan to its banks, in which it said it will slash overheads and concentrate on the most profitable parts of its trading business – international trading will be core going forward. As part of this it will pursue “far reaching” closures in its European and international stockholding business, one source said.