Sources say the key to the valuation might lie in Orissa Sponge's iron ore mine which can ensure availability of low cost ore for 15 years
Lenders to Monnet Ispat & Energy (Miel) expect a valuation of up to Rs 700 crore for its significant stake in Orissa Sponge Iron & Steel, according to the disclosure made by them to the prospective bidders for Monnet Ispat & Energy.
"Miel discussing stake sale with investors. Expected valuation is Rs 500-700 crore," lenders to Monnet Ispat have told prospective bidders.
Monnet Ispat holds 35.17% stake in Orissa Sponge, for which it had paid a total of Rs 293 crore. The lenders have valued the investment in the range of Rs 500-700 crore.
State Bank of Patiala, the leader of the consortium of lenders, had recently invited bids from strategic investors for Monnet Ispat, which has an integrated steel plant capacity of 1.5-million-tonne-a-year along with associated facilities including sponge iron, pellet plant, a 230 megawatt captive power plant in Chhattisgarh and 7.5 million-tonne-per-annum (mtpa) coal beneficiation plants in Chhattisgarh and Odisha.
Monnet Ispat has been trying to offload its 35.17% stake in Orissa Sponge and had disclosed last August that the company is "in-principal agreeable" to sell its stake held in Orissa Sponge to Bhushan Steel.
However, nothing has been heard from the respective companies since then.
The valuation, per se, appears optimistic, considering that Orissa Sponge's operations are closed since 2012 and the company having sponge iron manufacturing capacity of 250,000 tonne per annum (tpa), billet making capacity of 100,000 tpa and captive power capacity of 36 mw, has completely eroded its networth, feel prospective bidders.
Even trading in the shares of the company is now suspended due to failure to pay listing fees.
"The Board of directors at its meeting held on March 19, 2016 took note of the full erosion of net worth as per the financial accounts for the year ended March 2015," Orissa Sponge said recently, adding that a reference has been made to the Board for Industrial and Financial Restructuring.
The key to the valuation of Orissa Sponge might lie in its iron ore mine, sources said.
Orissa Sponge was allocated iron ore mines at Malangtoli in Orissa with a mineable reserve of 122 million tonne and average iron content of 63-64% which can ensure availability of low cost ore for a period of 15 years.
The mining lease, however, is pending on account of Stage two forest clearance while as per the new MMRDA act, terminal date for securing mining lease is January 2017.
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