A worker supervises the flow of hot liquid metal as it flows from the blast furnace during the iron smelting process. (Photographer: Krisztian Bocsi/Bloomberg)

Tata Steel Will Acquire Usha Martin Through Tata Sponge 

Tata Steel Ltd. will not directly takeover Usha Martin’s steel business. Instead, its associate Tata Sponge Iron will acquire the unit through a slump sale facilitating an entry into steel manufacturing.

The sponge iron maker seeks to raise capital through a combination of a rights issue of Rs 1,800 crore, external borrowings up to Rs 2,500 crore, or mezzanine finance, it said in an exchange filing. It will also consider issuing non-convertible redeemable preference shares of up to Rs 1,000 crore. This is in addition to its internal cash and cash equivalent resources.

Tata Steel has approved the financing plan in-principle and will consider providing investment support if necessary, it said in a separate filing.

Earlier in September, Tata Steel had said it would buy Usha Martin for Rs 4,700 crore to double its capacity by 2022. The original structure saw the steel giant acquire the 1-million tonne per annum business in an all-cash deal. Tata Steel had said that it reserves the right to acquire UML through any of its subsidiaries or affiliates. It owns 54.5 percent stake in Tata Sponge Iron.

The Rs 4,700 crore acquisition will be completed in six-nine months, Tata Sponge Iron said in its filing. The deal will entitle the sponge iron maker to UML’s 1 million tonnes per annum alloy based manufacturing capacity in long products segment, based in Jamshedpur, a producing iron-ore mine, a coal mine under development and captive power plants. Tata Sponge has a debt-free capital structure and free cash reserves of around Rs 670 crore, the filing said.

In effect, this would be Tata Steel’s second acquisition this year after it successfully bid for Bhushan Steel Ltd.’s business during insolvency resolution. Usha Martin’s standalone gross revenue from its steel business stood at Rs 3,441 crore as of March 31, 2018.