Tata Steel’s acquisition of NINL to bolster long steel production: Moody’s


Rating agency Moody’s Investors Service said on Monday that Tata Steel’s acquisition of Odisha-based Tata Steel’s Neelachal Ispat Nigam Ltd (NINL) is positive as it will increase long steel production capacity by the subsidiary and its iron ore reserves.

Earlier, Tata Steel announced that it had won the offer to acquire 93.71% of the capital of NINL for 12,100 crores.

“On January 31, Tata Steel Ltd (TSL, stable Ba1) announced that its 74% owned subsidiary, Tata Steel Long Products Ltd (TSLP), will acquire a 93.7% stake in Neelachal Ispat Nigam… acquisition will give TSL access to NINL’s 1.1 million tonnes per annum (MTPA) of long steel production capacity, 100 million tonnes of iron ore reserves and 2,500 acres of land.” Moody’s Investors Service said in a statement.

The acquisition of NINL, Tata Steel said, provides a significant opportunity not only to restart the plant which has been closed since 2020, but also to immediately begin work to build a state-of-the-art 4.5 long product complex. million tons per year in the coming years. years, and to expand it further to 10 million tonnes per year by around 2030.

The acquisition of NINL is essential for Tata Steel to build a dedicated long product complex that will be positioned to take advantage of synergies with Tata Steel’s shared infrastructure in the region.

Still, NINL is loss-making, and Moody’s Investors Service said it believes the acquisition price largely reflects steel mill, iron ore reserves and the amount of land that can accommodate capacity expansions.

And, while the acquired operations are significantly below TSL’s current global capacity of 32.5 MTPA, including its 19.6 MTPA capacity in India, they are positive as they will increase long steel production capacity by TSL and increase its iron ore reserves.

TSL expects to finance the acquisition through a combination of internal accruals and debt.

“Even assuming the $1.6 billion enterprise value is entirely paid for by debt, we estimate that TSL’s pro forma leverage in September 2021 would climb to 1.8x. acquisition is funded by internal accruals, the maximum pro forma leverage would be less than 1.8x Even so, with a rating downgrade leverage threshold of around 3.5x, there is a sufficient buffer in TSL’s financial parameters to enable the proposed acquisition,” the statement said.

Since March 2020, TSL has reduced its adjusted consolidated gross debt – including interest-bearing customer advances, which we treat as debt – by approximately 30%.

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