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Tatas steel against hostile bid

Mumbai, July 5: The Tatas are preparing to raise their stake in Tata Steel to over 33 per cent from 26 per cent at present to ward off the threat of a hostile takeover attempt from marauding steel tycoon L.N. Mittal, fresh from a bruising five-month battle to snare Luxembourg-based Arcelor.

Last week, the world’s top steel maker, Mittal Steel ' which reached a 25.6-billion-euro ($32.54 billion) deal to acquire rival Arcelor ' said it was eyeing acquisitions in emerging markets such as China and India.

“The steel industry is fragmented and considerably vulnerable ... The only safeguard is to increase the promoters’ stake over time,” Ratan Tata told shareholders of Tata Steel here today.

Mittal, who has shown infinite patience to win the Arcelor battle despite being vilified as an unwanted interloper, has clearly sent a frisson of fear through the Indian steel industry after articulating his intention to enhance his interests in India.

With little likelihood of his being able to snap up the integrated steel plants of the state-owned Steel Authority of India Ltd without government approval, it was all too evident that his eyes would fall on Tata Steel which is one of the cheapest makers of steel in the world. Last month, Tata Steel said it would raise up to Rs 6,500 crore through one or more equity-related issues, raising the firm’s paid-up capital by 15 per cent.

Ratan Tata said the group’s holding in the steel giant ' which is held through Tata Sons and a clutch of other group companies ' could rise to 33.6 per cent by March 2007.

Shares in Tata Steel ended nearly 5 per cent higher at Rs 563.90 on a day when the market was buoyant.

“Tata Sons is also willing to consider shareholders’ approval for a 10 per cent preferential issue ' at the price determined by Sebi ' in two tranches,” Tata said.

The first tranche of the issue will raise up to Rs 1,300 crore in the current financial year, Tata said.

Tata Steel also plans to tap overseas markets to realise a price that will be closer to the market value, Tata added.

Tata also announced a capital expenditure of Rs 70,000 crore over the next 10 years to make Tata Steel a 30-million tonne per annum company. Arcelor-Mittal, in comparison, has a present capacity of 120 million tonne per annum.

Tata Steel, which recorded its highest-ever after-tax profit at Rs 3,700-crore in fiscal ended March 2006, produced more than 5 million tonnes in the year and plans to reach 7.5 million tonnes by 2008.

Tata Steel has also been acquiring steel assets overseas though on a far more modest scale when compared with Mittal Steel’s buyouts. In August 2004, Tata Steel acquired Singapore-based Nat Steel for Rs 1,313 crore. In April this year, it completed the buyout of a 67.11 per cent stake in Thailand-based Millennium Steel for around Rs 600 crore.

Mittal Steel is planning to invest Rs 40,000 crore to establish a 12-million-tonne steel plant in Jharkhand. The project will be implemented in two phases of 6 million tonnes each with the first phase expected to be completed in 48 months.

Korean giant Posco is also planning to set up a 9-million-tonne plant in Orissa. Both Mittal Steel and Posco have been attracted by the easy availability of raw materials such as iron ore and coal and surging domestic demand.

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