The Telegraph
Since 1st March, 1999
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Mega steel merger in the works

New Delhi, May 24: It is likely to be India’s steel merger of the decade. Steel Authority of India Ltd (SAIL) and Vizag Steel may be merged to create an entity that will immediately place the new Indian steel-making giant among the world’s top 10 in terms of manufactured steel.

The Union cabinet will soon take a decision on a request to merge the two state-run profit-making steel behemoths into one single giant steel-maker whose combined turnover will be in the region of Rs 38,000 crore to Rs 40,000 crore or nearly $10 billion.

The new entity will have a combined crude steel production of 15.8 MT, making it the tenth biggest global steel-maker. If Indian Iron & Steel Company (IISCO) is also merged with SAIL, another move that is being considered by the Cabinet, then the combined production will go up to 16.2 MT ' higher than ThyssenKrupp of Germany, the current No 9.

Vizag Steel ultimately wants to raise its output to a record 10.2 MT by 2012. SAIL also plans to increase its capacity by that time from the current 13 MT to 20 MT. This will give the two a combined output of 30.2 MT.

With IISCO planning to produce another 2 MT by 2012, the figure will be a massive 32.2 MT that will put it a notch higher than that of world’s current No. 3, Nippon Steel (provided of course, other steelmakers do not raise their output by that time).

Analysts say with most global steel-makers from the developed world focusing on reducing the total output and concentrating on value-added steel products, it is quite likely that at least two to three of the big five steel players worldwide will pull out of the developing world.

The note for the cabinet on the proposed merger of the two public sector steel-makers has already been circulated to all the ministries concerned for their comments and will be later taken up by the cabinet.

As there are no financial implications to the merger, most comments are expected to be in the form of riders to ensure the amalgamation does not create an unmanageable colossus and is done in a manner where it is easy for each to adjust to the other.

Locally, the difference between the new entity and the second biggest steel-maker Tata Steel will be enormous ' the Tata flagship’s crude steel output at 4.103 MT will be just about a quarter of the output of the new player.

Senior officials said the steel ministry’s move was aimed at giving the new firm the benefits of scale that will accrue from such a merger. Moreover, the rich iron ore and coal mines that Rashtriya Ispat Nigam or Vizag Steel, as it is popularly known, owns is an added boon.

SAIL’s own mines are nearing exhaustion and it is banking on a merger with IISCO for its future requirements and expansion programmes. SAIL officials are cautiously optimistic about the merger and say they will obviously welcome it if it happens.

Interestingly, the move comes even as the cabinet is considering a Rs 8,250-crore expansion programme for Vizag Steel.

The coast-based steel company is to expand its output from the current 3.5 MT to 6.3 MT by putting up a new blast furnace besides setting up new facilities for value-added steel products within the next three years.

This expansion is expected to be funded through a combination of savings and debt, which Vizag Steel feels it can take on. However, analysts say it is the long-term expansion to 10.2 MT by 2012 where it may need the fiscal muscle of SAIL and which is why it makes sense to merge the Andhra Pradesh-based steel-maker with the bigger player.

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