Mahindra Ugine sells 49% of steel biz to Japan’s Mitsui, Sanyo for $39M

Mahindra Ugine Steel Company Ltd (Musco) has completed the sale of 49 per cent stake in its steel business to two Japanese firms Mitsui & Co. Ltd and Sanyo Special Steel Co. Ltd for Rs 218 ($39 million), as per a BSE filing.

Sanyo will invest Rs 129 crore for a 29 per cent stake and Mitsui will invest Rs 89 crore for picking up a 20 per cent stake in Navyug Special Steel Pvt Ltd, a majority owned subsidiary of Mahindra Ugine.

Musco had earlier approved the slump sale of its steel business to Navyug Special Steel in November 2011. However, that time the deal was pegged at Rs 187 crore. The final deal has pegged the steel business’ valuation at Rs 444 crore.

Mahindra Ugine scrip shot up 15 per cent to close at Rs 56.15 a share on the BSE in a strong Mumbai market on Friday. At this price, the parent company is valued at Rs 182 crore or less than half the value of its subsidiary. Musco’s valuation of its equity stake in the steel business itself is around Rs 226 crore.

Mahindra Ugine will take care of the general management, Sanyo will lead the manufacturing function while Mitsui will support the marketing function of the JV, and the name of Navyug Special Steel Pvt Ltd will be changed to Mahindra Sanyo Special Steel Pvt Ltd, according to the company statement.

Sanyo’s technical assistance will enable the venture to strengthen and differentiate its product portfolio with the introduction of new products for niche and emerging market segments in India -– oil & gas, power and engineering industries. Mitsui will help the company strengthen its sales and marketing footprints in the niche and emerging segments, as well as in the existing alloy steel market in India.

Incorporated in 1962, Musco manufactures and sells alloy steel & ring rolling products, as well as pressed sheet metal components and assemblies, primarily in India. The majority owned subsidiary of Mahindra & Mahindra largely caters to automotive, engineering and bearing industries.

Last month, Mitsui had also entered into a definitive agreement to acquire a 30 per cent stake in Mumbai-based Toto India Industries Pvt Ltd for $10.9 million.

The latest deal follows a string of transactions involving Japanese industrial majors picking an exposure to Indian steel and steel-related products companies. In 2010, Japan’s second largest steel-makerJFE had struck a deal to buy around 14.99 per cent stake in JSW Steel for about $1.02 billion, in what was pegged as one of the biggest foreign direct investment deals in metal and mining space till date.

(Edited by Prem Udayabhanu)

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