Bhushan Steel says will soon seek Nova Iron control

Sanjay Singhal-controlled Bhushan Power and Steel will come up with an open offer for Bilaspur-registered Nova Iron and Steel very soon.

Anil Agarwal, vice-president - finance, Bhushan Power and Steel, said the company is looking to take a controlling stake in Nova Iron. “This is a strategic investment for us as we were planning to enter Chhattisgarh for a long time. Through a major stake in this company, we can have a foothold in the state,” he said.

He did not say at what price the open offer will be made.

It would be a friendly takeover wherein the Gambhir family, which holds majority stake in Nova Iron, will part with some of its holding in the company, the sources said. According to them, the company could be tendering for close to 28% stake through the offer.
Nova Iron officials could not be reached for a comment.

Bhushan Power currently holds 22.9% stake in Nova Iron, which it purchased from the open market in two bulk deals. The first deal was on June 8, when it acquired 14.77% stake at Rs11.71 per share. The second deal was on June 13, when it acquired the remaining at Rs13.88 per share. On Wednesday, the Nova Iron share closed at Rs14.46, down 2.23%.

Nova Iron is a Delhi-headquartered loss-making sponge iron player, currently operating at abysmally low capacities. It has an installed sponge iron capacity of 150,000 tonne per annum, most of which is non-operational due to unavailability of iron ore.

“From March 9, 2010 to May 14, 2010 the plant remained closed for the non-availability of iron ore and after that the production has not been resumed because of poor selling price of sponge iron in the market. The selling price of sponge iron being not attractive in the current scenario, the operations of the plant continue to be suspended,” R K Gambhir, chairman of Nova Iron and Steel, had said at the annual general meeting in August 2010.

The real solution for the viability of operations, therefore, lies in the captive iron ore mine — in order to be sure of the continuous supply of iron ore at the right price — apart from installation of a power plant utilising waste heat of kiln, expansion of production capacity and installation of furnace, etc. However, till a continuous supply of iron ore is ensured, the above said new projects shall have to wait. Full efforts in this direction are being made.

Agarwal said Bhushan Power has expertise in running steel plants and the investment is being made from a long-term perspective. “We will, of course, put in more capital in the company to turn it around, but no plan of action has been zeroed in on yet,” he said.

Bhushan Power has a 2.5 million tonne per annum steel manufacturing capacity and has expertise in manufacturing upstream and downstream products, from hot rolled coils to galvanised pipes. It has its main manufacturing facility in Orissa, and downstream product facilities in Hooghly and Chandigarh. For the year ending March 2010, it had gross sales of Rs4,217 crore and a net profit of Rs256 crore.

This will be the third deal in a wave of consolidation that started last year when big players, bottlenecked due to bureaucratic hassles, failed to set up greenfield facilities. In December, JSW Steel acquired debt-ridden Ispat Steel. Then, in March, Sesa Goa acquired Bellary Steel.

Next in line is expected to be a deal between Uttam Galva Metallics, a non-listed entity of specialised steel manufacturer Uttam Galva, and Mumbai-based Lloyds Steel.