NMDC board okays demerger of three-mn-tonne Chhattisgarh steel plant

The NMDC stock was up by 11.98 per cent on the Bombay Stock Exchange (BSE) and closed at Rs 107.50.
India’s single largest iron ore producer, state-owned NMDC, said on Friday that its board had approved a proposal to demerge NMDC Iron & Steel Plant (NISP).

The board met on Thursday and accorded in-principle approval to the proposal to demerge NISP at Nagarnar in Chhattisgarh, the company informed stock exchanges today.

The three-million-tonne (mt) steel plant is the only greenfield project slated for commissioning in the near term. Sources familiar with the matter said that the plant would have been commissioned by now had it not been for the Covid-19 pandemic.

“There are two major problems – one is, lack of workers to complete the project and the other is European technology partners are finding it difficult to travel in the wake of Covid-19,” sources indicated.

Sources believe that the demerger could be a precursor to disinvestment. A day earlier, Chief Minister, Bhupesh Baghel, wrote to Prime Minister, Narendra Modi, against privatization of the steel plant that had been constructed at a cost of over Rs 20,000 crore. According to a PTI report, the letter mentioned that it would deeply hurt the hopes and ambitions of the tribal people.

An ICICI Securities report said, if pursued in a time bound manner, the demerger could create separate avenues of fund raising for the government of India. 

The report also said that the in-principle approval to demerge, i.e. creating a separate listed company eventually with a shareholding akin to NMDC would be value accretive to minority shareholders. The exchange notice from the company, however, did not make any mention of listing.

“All incremental capex for the steel plant can be self-funded by the demerged entity and improve return ratios of the mining entity substantially; allow investors a better pure play mining opportunity,” the report added.

The NMDC stock was up by 11.98 per cent on the Bombay Stock Exchange (BSE) and closed at Rs 107.50.

Sources said, deposit 4 at Bailadila with mineable reserves of up to 107.59 million tonnes was earmarked for the steel plant. NMDC produces about 35 million tonnes of iron ore from its Bailadila deposits in Chhattisgarh and Donimalai in Karnataka.

In the past, mega greenfield steel projects by Tata Steel and Essar Steel in Chhattsgarh, have tripped, either due to land woes or mine linkages. But that has been the scenario for most greenfield projects in India. 

Between 2004-2006, a slew of MoUs had been signed by companies to set up greenfield projects to add more than a 100 million tonnes capacity. But most of them never took off and in the past decade, more than 60 per cent capacity addition that has happened in India has been through brownfield expansion.

Though land acquisition for the NMDC project started sometime in early 2000, the steelmaking technology for the proposed plant was changed, and it was in 2010 that the board approved Rs 15,525 crore for setting up the integrated steel plant. 

NMDC Iron & Steel Plant

Size: 3 million tonnes
Location: Nagarnar, Chhattisgarh
Project cost: Rs 20,000 crore-plus

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel