Uttam Galva Steels promoters have signed a co-promotion agreement, with Arcelor Mittal Netherlands (AMN), B.V. Netherlands, which is a 100% indirect subsidiary of Arcelor Mittal, the world’s largest steel manufacturer. Under this, existing promoters will be transferring 5.60% stake to AMN, out of 45.60% held by them.
Though AMN, have not yet acquired 15% or more in the company, but in view of they becoming joint promoters of the company, open offer has been triggered. AMN has made an open offer to acquire 3.52 crore equity shares of the company, at Rs.120 per share, which is opening on Saturday, the 31st October 2009 and closing on 19th November 2009. The present paid up equity capital of the company, is at Rs.119.85 crores, which would eventually rise to Rs.136.73 crores, on conversion of series A, US $ 17.50 million FCCB, at Rs.45.12 per share, with fixed rate of exchange on conversion of Rs.43.53 per U.S. Dollar. Though conversion option of these FCCBs, can be exercised upto 31st July 2010, it is most likely that, this will get exercised in the near future, so as to enable them to participate in the open offer.
Paid up equity of the company, which was at Rs.113.97 crores, got raised to Rs.119.85 crores, on allotment of 58.75 lakh equity shares, on 27th August 2009, to the promoters of the company, on acquiring power division, of Shree Uttam Steel and Power Ltd. Due to this, promoters stake in the company, rose from 40.71% to 45.60%.
With open offer now being made at Rs.120 per share, and share now ruling at Rs.125, with frozen at the upper circuit, commercial sense says that it will not see any response coming in. So does it likely to get revised upwards, the last date for which is 10th November 2009. Quite likely, and the revised price call would be taken at that time, which is likely to be close to the prevailing market price, of the company, at that time.
However, if one sees the present shareholding pattern of the company, 4.40 crore shares, which is about 32.20% of the emerging voting capital, is held by just 5 FIIs. In addition to this, 1.69 crore equity shares, being 12.35%, most likely to get acquired by FCCB holders on conversion, puts it at about 44.50% of the expanded equity base. One knows that, due to overseas presence of the new promoter, it will be easy to acquire the stakes held by these OCBs and FIIs. However, existing promoters of the company have also hinted of AMN, increasing their stake in the company, in the near future.
So can one expect a complete buy-out of the company, by AMN, with 75% stake to be held by them, with 25% remaining with the public, to enable the company to remain listed? This 25% stake may in turn, partly remain to be held by these FIIs or OCBs, with very low Indian public float. Probably, smelling this, the share is seeing renewed buying interest, as future AMN company in India.
The present market capitalization of the company works out at close to Rs.1600 crores, adding debt thereto, of close to Rs.1200 crores, enterprise value of the company works out to Rs.2800 crores. This valuation, definitely appears to be quite stretched, which is over 25 times of its average PAT, of last three years, and considering that the company has never rewarded to its shareholders with the dividend as yet. But, as AMN was unsuccessful in creating its presence on the Indian soil, and especially in the steel sector, it seems that they have overlooked the valuations, or consciously moved to pay Rs.500 crores, or so, more. The company presently has a capacity of 6 lakh TPA and raising it to 8 lakh TPA in this fiscal. With AMN assuming complete control of the company, it can get raised to 2 million tonne plus in next couple of years, at very low cost, due to in-house strength and capability lying with AMN, for various value added products.
This acquisition has one more twist. Bhushan Steel and Uttam Galva promoters are related to each other (Miglani’s son married to Singal’s daughter) and even Bhushan Steel Ltd. may be next on the radar of AMN group. Bhushan Steel is also a one million tonne producer of CR coil, GP/GC and Colour Coated coils. In the recent past, promoters of both these companies, seems to be more bullish on power generation and realty space and have been making huge investments in both these sectors. So maybe, realizations of the stake sale, can give them better returns in these two sectors, instead of continuing in their existing companies.
Keep fingers crossed. If this happens, it will be uttam for the country, and for the shareholders of both the companies. Presence of Mittal Group, in India will see many steel stocks getting re-rated.
