Japanese steel manufacturer Daido Steel Co is acquiring 10 per cent equity stake in the Nagpur-based Sunflag Iron & Steel Co for around Rs 55.86 crore ($9 million) through a preferential allotment to strengthen its presence in the fast growing Indian market, according to a stock market disclosure.
The two firms signed a share subscription agreement where the Japanese firm will be allotted 18 million shares at Rs 31 each. Sunflag, which is a public listed firm, is holding an EGM next month to approve the stake sale.
Currently, promoters and promoter group of Sunflag hold 54.51 which will reduce to 49.06 per cent post the fresh allotment.
The money raised through the preferential allotment will be used to strengthen the capital base of the company for raising debt in future, to meet certain capital expenditure, etc.
In November 2010, Daido singed a technical assistance partnership with the Indian firm. Under the partnership, Daido has been providing advice on capital investment and has supported Sunflag.
Founded in 1950, Daido is one of the major alloy steel manufacturers in Japan and caters to the major portion of the steel requirement for auto components in Japan.
Sunflag produces stainless and structural steel products with an annual production capacity of 300,000 million tonnes.
In the quarter ended March 31, 2014, net profit of the company declined 22.78 per cent to Rs 11.15 crore from the same period a year ago. Sales of the firm, however, rose 12 per cent to Rs 425.38 crore in the quarter.
Sunflag scrip closed the day at Rs 30 per share, down 3.38 per cent from their previous close on the BSE in strong Mumbai market on Wednesday.
(Edited by Joby Puthuparampil Johnson)