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Blackstone-backed Monnet Ispat in talks to sell steel and power business

28 September, 2016

Debt-laden Monnet Ispat and Energy Ltd (MIEL) is in advanced discussions with various investors for a stake sale in the company, its chairman and managing director Sandeep Jajodia said.

MIEL’s consolidated net debt is Rs.12,500 crore. Of this, Rs.8,500 crore is on account of its steel business, with the balance Rs.4,000 crore debt due to the power generation business.

“We are in advanced discussions with two to three people to sell our steel and power business, which includes a European investor. The amount of equity being taken will depend on the investor as to how much money they would like to come in with and take some position in the company with us to take it forward from the present problems,” Jajodia said.

The Financial Express newspaper reported on 28 April about lenders to MIEL seeking bids to sell up to 51% equity stake in the company.

The Rs.3.1 trillion debt-laden Indian steel industry is reeling under financial stress due to a fall in demand and cheap imports from China. This has led to 27% of loans to the industry becoming distressed.

This comes in the backdrop of the National Democratic Alliance government extending protectionist measures for the domestic steel industry. On 4 August, the government extended minimum import price on 66 types of steel products ranging from $341-752 per tonne for two months till 4 October.

Jajodia said that the steel industry globally is doing very badly.

Consulting firm EY said last month that debt at the world’s top 30 steel firms touched $150 billion.

“People do not want to put so much money into steel and power sector in India as it is going through a difficult time. Because of low power prices at the exchange, it is hardly able to cover the coal costs. And PPAs (power purchase agreements) are not forthcoming with various discoms (distribution companies), as they are in bad financial health,” he added.

While the demand for electricity is muted, the government believes that it will revive through an improvement in the financial position of the state electricity boards. The government has launched a bailout plan—Ujwal Discom Assurance Yojna, or UDAY. Under the scheme, state takes over a distribution company’s debts thereby creating fiscal space for the discom to purchase electricity.

Experts believe that this is the right time for international investors to invest in the Indian steel sector.

“Given the long term demand growth potential, the international investors may look at India as an opportune time to invest as stressed assets may be available at cheaper valuations,” said Anjani K. Agrawal, national leader, mining and metals sector, at consultancy firm EY.

According to information available on the company’s website, MIEL has an integrated steel plant at Raigarh with a production capacity of 1.5 million tonne (MT) per annum. The company’s subsidiary Monnet Power Co. Ltd runs a 1050 megawatt thermal power plant at Angul in Odisha.

“Our 1.5 MT steel plant is running at a much lower capacity because of market conditions and other issues. Demand for steel and power is the real concern,” Jajodia said.

MIEL reported a loss of Rs.358.60 crore for the quarter ended June 30.

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Blackstone-backed Monnet Ispat in talks to sell steel and power business

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