Another PSU Privatisation: Union Cabinet Approves Tata Steel's Bid To Acquire 93% Stake In Neelachal Ispat Nigam Ltd

An empowered cabinet committee (alternate mechanism) comprising of Union Minister Nitin Gadkari, Nirmala Sitharaman and Piyush Goel, has approved the bid of Tata Steel Long Products Limited to acquire majority stake in Neelachal Ispat Nigam Ltd (NINL)

Tata Steel Long Products's bid quoting an enterprise value of Rs. 12,100 crore was approved by the the cabinet committee. Tata Steel Long Products out bided JSW Steel Limited and a consortium of Jindal Steel & Power Limited and Nalwa Steel and Power Ltd.

NINL is a joint venture of 4 central public sector undertakings - Minerals and Metals Trading Corporation (MMTC), NMDC, BHEL, MECON- and 2 two Odisha government-owned undertakings OMC and IPICOL. The central and state PSU together held 93% stake in the company.

MMTC is the largest shareholder of NINL having a 49.78 per cent share, apart from NMDC, which holds 10.10 per cent. Two Odisha government entities, Odisha Mining Corporation (OMC) and Industrial Promotion and Investment Corporation of Odisha Ltd (IPICOL), hold 20.47 per cent and 12 per cent, respectively. The remaining 7.65 per cent is owned by an unlisted entity.

NINL has an integrated steel plant with a capacity of 1.1 MT, at Kalinganagar, Odisha. Set up in 1982 to promote industrialisation in the state of Odisha, the company has been underperforming for many years and running in huge losses . The steel plant ceased operating in March 2021.

The company has huge debt and liabilities exceeding Rs. 6,600 crores as on 31.3.2021, including huge overdues of promoters (Rs 4,116 crore), banks (Rs 1,741 crore), other creditors and employees. The company has negative networth of Rs. 3,487 crore and accumulated losses of Rs. 4,228 crore as of March 2021.

Tata Steel will get the mining rights and leasehold land spread over 2,500 acres. Given that Tata Steel has a significant presence in Odisha where it operates a 3mt plant at Kalinganagar (and expanding it), the group viewed NINL as a strategic fit to the existing unit, apart from increasing exposure to the long products.

Even though Union government does not hold any direct equity in the company, the boards of the PSUs authorised Department of Disinvestment & Public Asset Management (DIPAM), a division of Union Finance Ministry, to undertake the sale transaction.

In late 2020, the Union Cabinet headed by Prime Minister (PM) Narendra Modi had cleared the strategic disinvestment of equity shareholding of the PSUs in NINL in 2020 following which DIPAM had in January this year invited the preliminary bids.

The transaction was executed through the extant consultative multi-layered decision mechanism-based procedure involving Inter Ministerial Group (IMG), Core Group of Secretaries on Disinvestment (CGD) and the empowered Alternative Mechanism. Govt. of Odisha with their companies, OMC & IPICOL having stake of 32.47% was also part of the decision-making at every stage.

"This is the first instance of privatization of a public sector steel manufacturing enterprise in India. The success of the transaction is a win-win situation for all. The biggest advantage of privatization will be to the local economy of the region as the strategic buyer will be able to revive a closed plant, bring in modern technology, best managerial practices and make infusion of fresh capital, which will help in augmenting the capacity of the plant." the government said in a statement.

"The transaction is on “going concern” basis and the employees of NINL will continue to be the employees of the company in terms of the Share Purchase Agreement (SPA), which binds the buyer to have a lock-in period of one year. The strategic buyer will also be bound to follow the terms of VRS applicable to CPSEs whenever such a decision is taken." the governement added