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Tatas pull off another coup
NatSteel deal opens gateway to China

Mumbai, Aug. 16: Tata Steel (Tisco) today joined siblings Tata Tea and Tata Motors on the foreign buyout trail when it sealed a deal to snap up NatSteel Asia in a Rs 1,313-crore buyout that gives it an instant foothold in Southeast Asia and China — the largest steel market.

The acquisition will enable Tata Steel to expand its manufacturing base to Singapore, China, Malaysia, Thailand, Australia, Vietnam and the Philippines — areas where steel demand is expected to be the highest in future.

The Tatas will buy NatSteel Asia — a wholly owned subsidiary of NatSteel in which all its steel business will be spun off. It reported a turnover of Rs 3,800 crore and a pre-tax profit of Rs 127 crore in the last financial year.

Tisco managing director B. Muthuraman said in Singapore, where NatSteel is based, that the acquisition is an important step in Tata Steel’s quest for a global presence.

NatSteel’s buyout is one of the largest in India Inc. It follows Tata Tea’s acquisition of Tetley for around Rs 1,800 crore, Tata Motor’s purchase of a Daewoo arm for Rs 465 crore and Reliance’s Rs 1,000-crore deal for Flag Telecom.

NatSteel, the dominant steel producer in Singapore, owns mills in China, Thailand, Vietnam, the Philippines and Australia. Focused on long products like rebars, wire rods, pre-stressed concrete wires and strands, the company has an annual capacity of three million tonnes. This will be added to Tata Steel’s four million tonnes.

The acquisition will also give Tata Steel a 26 per cent stake in Southern Steel Berhad, a 1.3-million tonne Malaysian firm. “NatSteel’s business provides us access to key Asian markets, including China,” Muthuraman said.

The steel boom in China — where Morgan Stanley sees demand growing at a scorching 8.7 per cent annually to 93 million tonnes in 2004-07 — is being driven by a construction blitz and the build-up to the 2008 Olympics. NatSteel’s facilities are close to that country.

“It is a fantastic acquisition. Tata Steel was not leveraged. This will help it ramp up capacities by using its funds more productively,” said Jigar Shah of Kisan Ratilal Choksey, a Mumbai brokerage.

The ripples spread to Dalal Street, where the Tata Steel stock firmed up 4 per cent, or Rs 10.40, at Rs 266.15. It was the turnover topper in the bourse’s A group.

“With this transaction, NatSteel Asia will be well positioned to weather the volatility in the steel industry because it will be part of a much larger, fully-integrated steel group with extensive resources,” said NatSteel president Ooo Soon Hee, seated next to Muthuraman in Singapore.

President Cham Tao Soon said the Tatas had made an unsolicited offer, which it asked Goldman Sachs to evaluate.

The transaction is expected to be through in five to six months, by which time all regulatory approvals should be in. Muthuraman said the management of NatSteel will be retained after the takeover. He would not say who would represent Tata Steel on NatSteel Asia board.

The deal will help the Tatas add value to the export of their billets and iron ore, which can be processed at NatSteel furnaces.

Hungry for more

Muthuraman indicated that Tata Steel is hungry for more acquisitions, saying proximity to the market was the clinching factor in the deal for NatSteel. “Further acquisitions will be dictated by a similar logic. Raw material sources and markets should be close. There’s no point in buying plants in areas where steel demand is not too high.”

It took the Tatas four months to tie up the deal, but global steel majors like Accelor and Lakshmi Mittal’s LNM Group did not get wind of it. “It was exclusive and there were no other bidders,” said an official from StanChart, which advised the Tatas on the transaction, along with Baker & Mckenzie and AZB & Partners. The Singapore-based Deloitte & Touche were the accountants.

“NatSteel was comfortable dealing with Tata Steel. It was an association between two like-minded companies with a similar set of values,” the official added.

The Tatas set up a steel plant almost hundred years ago and turned it into one of Asia’s largest integrated steel plants. For NatSteel, which procures almost all its raw material from abroad, the takeover by a fully integrated steel maker made sense.

Unlike the Tatas, the LNM group achieved a capacity of 38 million tonnes mostly through rapid-fire acquisitions. The Tatas are still relatively small, but they will cross five million tonnes in Jamshedpur by September 2005, even without NatSteel. The big buy came today. And, as Muthuraman said, there will be more.

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