Pig iron maker Tata Metaliks has revived efforts to sell its plant at Redi in Maharashtra after a deal with Fomento (Karnataka) Mining Company Pvt Ltd failed in April.
“We are currently inviting interests from parties. There are a few parties, all domestic. If the slump sale doesn’t happen, we might dispose of different assets separately,” Koushik Chatterjee, chairman of Tata Metaliks and group chief financial officer of Tata Steel, told reporters.
Tata Metaliks had said in April that the business transfer agreement entered into by the company with Fomento in September 2011 for the sale of Redi, Sindhudurg, plant could not be consummated due to some “irreconcilable issues”.
“The Redi plant is now unencumbered, as we have freed it from the hypothecation by paying off the lenders out of the preference capital that we have brought in from Tata Steel,” Chatterjee said after the annual general meeting of the company.
The earlier deal was valued at Rs180 crore. While Tata Metaliks was planning to repay some of its debt out of the proceeds from sale of its Redi plant, Tata Steel in May pumped in Rs100 crore of non-cumulative redeemable preference shares to be redeemable after three years.
“When the Redi plant was acquired iron ore prices were $30 a tonne. So there was a good business case for acquiring the Redi plant in 2006 and running it by purchasing iron ore, coal and coke.
But since 2007, iron ore prices have more than trebled, hovering at around $100 a tonne. Coal prices were also at significantly lower level of $70-90 a tonne, while now they are at $220. That gave a very significant cost squeeze. This kind of business model is no longer viable.
This is the reason we mothballed the plant in October 2011 and contracted with a potential buyer. Running the plant makes sense only to those people who have iron ore mines in that area and don’t incur too much freight costs. But unfortunately there were issues relating to valuations and terms of agreement, so the deal couldn’t happen,” he said.
Tata Metaliks would continue to ramp up capacity production at its ductile iron pipe joint venture, Tata Metaliks Kubota Pipes, despite initial troubles.
“While DI pipe foray is a strategic investment as India invests more in infrastructure, unfortunately it didn’t deliver within a year much as we like and took time to establish. But we are taking all steps to improve this investment incrementally. In 2011-12, production of pipes more than doubled to 49,000 tonne and this year we plan to achieve a growth of 20%. We will carry on this growth till we reach the rated capacity.”
The installed capacity of the plant at Kharagpur, in which Tata Metaliks and Kubota holds 51% and 44%, respectively, is 110,000 tonne a year.
Tata Metaliks is also looking at ways to go asset-light in some of its future investments to improve profitability at a time when cost of making pig iron has gone up significantly.
“We are looking for partners for running coke oven batteries in our Kharagpur pig iron plant as we don’t want to put all the investments ourselves. They may have stakes of 50% or 74%,” Chatterjee said. Tata Metaliks plans to set up a coke oven of capacity 10,000 tonne a month at its Kharagpur plant, to be constructed on build-own-operate-transfer, or BOOT, model. Gas generated out of coke conversion would be used to generate 10 mw of power.