Electrosteel in cash chase for Bokaro unit

Calcutta, July 2: Electrosteel Casting Ltd, the country’s largest ductile iron pipe maker, is in talks with domestic and international financial institutions for funds to build a Rs 5,000-crore integrated steel and pipe plant in Jharkhand.

The city-based company plans to set up the plant near Bokaro. The unit which will have a capacity of 1.3 million tonnes will manufacture wire rods, bar and ductile iron pipes.

It has acquired 300 acres for the project and the initial work has begun. However, it has approached the Jharkhand government for more land, keeping in mind future expansion possibilities.

The project, to go on stream by late 2009-10, will have a 3:1 debt equity mix. Electrosteel Integrated Ltd (EIL), an associate company of ECL, has been formed for the project.

An ECL official said of the total equity component of Rs 1,240 crore, the company would provide Rs 500 crore. The remaining will come from private equity players and financial institutions.

“We have signed an agreement for Rs 350 crore already. The balance Rs 390 crore will be tied up in the next two to three months,” Ashutosh Agarwal, assistant vice-president (finance), said.

IL&FS Financial Services Ltd has been mandated to act as the financial adviser and sole arranger for project finance. It is expected to pick up some stake in the project as well.

“We are in talks with private equity players and financial institutions,” Agarwal said.

Given the fact that the project will be executed over the next two-and-half years, financing is not going to be a constraint. At a later date, EIL may tap the capital market and get listed on bourses.

ECL plans to shovel part of the funds raised through a recent foreign currency convertible bonds (FCCB) issue into the equity of the new project. The new plant will run on captive coal and iron ore, which will help the company to have control over the raw material cost and their availability.

Electrosteel is in the final stage to get mining licences for 230 million tonnes iron ore and 100 million tonnes coal in Jharkhand. Mining operations are expected to start well before the new plant goes on stream. It plans to produce 700,000 tonnes of bar, 400,000 tonnes of wire rod and 200,000 tonnes of ductile iron pipes at the new plant.

The company is entering into steel making (long products) to tap the booming construction sector.

ECL’s present unit is located on BT Road in North 24-Parganas with 250,000 tonnes of ductile iron pipe capacity.