NMDC Steel: The Tale Of Demerger, Politics And Privatization!
After the demerger of its steel division, NMDC Steel's stock price has risen, and it is projected that the firm would be able to lower its capital intensity and increase its dividend payment ratio.
With the demerger from NMDC finalized, the Centre will shortly request financial bids for the privatization of NMDC Steel, with the deal expected to be completed in early 2023-24, according to an official. After opening the week at Rs 30.25 on the stock markets, the share price of NMDC Steel climbed 4.88% the next day to conclude at Rs 33.3.
The demerger of NMDC Steel will not only unlock wealth for NMDC shareholders but will also greatly enhance NMDC’s return profile now that the big-ticket item has been removed from its balance sheet.
After the successful strategic divestiture of Odisha-based Neelachal Ispat Nigam Ltd (NINL), which is jointly held by four central PSUs and two Odisha government PSUs, to Tata Group in January 2022 for Rs 12,100 crore, NSL will be the second steel business to be sold.
The eligibility for the bidders.
Only prospective bidders who match the eligibility requirements will be permitted to proceed to the next stage of the transaction, which includes extensive due diligence and the submission of financial bids. Yet, in the competitive bidding process involving some of the major local and global steel manufacturers, the strategic sale is projected to fetch far more than the market share price.
The health of NMDC.
NMDC has already invested over Rs 22,000 crore in the construction of the new facility. Physical works such as excavation, concreting, structural construction, and equipment supply have already made significant progress. Because the facility is projected to be completed in March 2023, the implementation risk is smaller. Nevertheless, there are also possible drawbacks, such as interruption caused by insecurity in the Chhattisgarh region and regulatory uncertainty owing to probable greater royalty demand from state governments.
The iron-ore industry remains appealing because NMDC’s mines offer high-grade, low-impurity iron-ore, which, when combined with good geological conditions, places them among the world’s lowest cash-cost mines. NMDC’s reserves can endure for 40 years at the current pace of production, although new drilling would develop greater reserves. Furthermore, NMDC’s significant entry into the pellet market would serve as a natural hedge against any fluctuation in its iron-ore sales volume owing to business cyclicality.
The oligopolistic structure would also help NMDC, as a handful of companies, primarily from Australia and Brazil, provide the majority of the world’s high-grade seaborne iron ore.
The idea for privatization.
After the demerger of its steel division, NMDC Steel’s stock price has risen, and it is projected that the firm would be able to lower its capital intensity and increase its dividend payment ratio. The stock is exhibiting strength on momentum indicators, with an immediate goal of 44 levels amid extreme volatility, according to the technical setup.
The earlier news about NMDC.
The CCEA gave its ‘in-principle’ permission in October 2020 to the demerger of the Nagarnar steel production unit from NMDC and strategic disinvestment of the emerging firm by selling the federal government’s full interest. NMDC authorized the demerger of NMDC and NMDC Steel last year.
After that, on December 1, 2022, the government requested bids for a 50.79% interest in NSL. When the strategic buyer for the 50.79% stake is chosen, the government will offer the remaining 10% stake to NMDC. NSL is 60.79% owned by the Centre. The Centre’s 60.79% share was worth around Rs 6,000 crore at the current market price. It intends to sell 50.79% of the company’s stock as well as managerial control.
On January 27, the Government received various expressions of interest (EoIs) for the same stake in the NMDC Steel Ltd (NSL) factory under development in Nagarnar, Chhattisgarh. Moreover, after identifying the strategic buyer through the bidding procedure, the Centre will award NMDC a 10% interest in NSL.
For the December quarter, NMDC’s consolidated net profit more than halved to Rs 904 crore, owing mostly to reduced income. In the prior fiscal year 2021-22, the firm had a net profit of Rs 2,047 crore from October to December. Its overall revenue fell to Rs 3,924.75 crore from Rs 6,026.68 crore in the previous quarter.
In July of last year, NMDC announced that its board of directors had authorized a scheme of arrangement between the firm, NMDC Steel, and their respective creditors and shareholders, which included the demerger of Nagarnar Iron & Steel Factory (NISP). The NISP facility at Nagarnar, Chhattisgarh, would be demerged from NMDC and transferred to NMDC Steel (NSL), a wholly owned subsidiary of NMDC, under the Plan.
Politics in the NMDC region.
The National Mineral Development Corporation (NMDC) steel factory project of 3 million tonnes per year was envisioned in the newly established state of Chhattisgarh in 2000. Despite considerable tribal opposition to the project, the government persuaded them with promises of jobs and a super specialty hospital, sports complex, and schools. Tribals provided around 1,996 acres of land for the steel mill, another 21.68 acres for the super specialty hospital, and 50 acres for the sports facility. Individuals whose land was seized for the steel mill were offered jobs at the facility, which will be fully operational soon.
Promises that were not kept.
The tribals, on the other hand, are enraged because, some 20 years after the project was created, the promises of the hospital and sports facility remain primarily on paper. Mahender John, a tribal member whose property was confiscated and who is now employed at the facility, claims that the government duped the tribes. They obtained land from the tribals while putting the PSU (NMDC) in the forefront. Now that the government is privatizing this, tribals are concerned about how they will keep our employment. The land was bought from tribals in the region in two phases: 996 acres from 303 farmers in 2001, and about 1,000 acres from 1,154 farmers in 2010.
While tribals claim that compensation in the first phase was meager at approximately ‘19,000 per acre (with only one farmer receiving ‘1 lakh per acre), the second phase witnessed “acceptable” pay ranging from ‘9.5 lacks to ‘13.5 lacks per acre. “The land was purchased in both stages,” says Sant Ram Setia adding, but this property was taken from tribals with extremely tall promises of government jobs, a super specialty hospital, a school, and a sports stadium.
Politics at the tribal level.
The emotionally charged subject has now taken on political overtones. Both the BJP and Congress have shown interest in selling the government’s 50.79% share in the ‘20,000 crore facility. Seeing that the Centre’s decision might backfire on the state BJP, former Legislator Santosh Bafna has made the construction of a super specialty hospital the key issue, organizing a rally on December 26 from the proposed hospital site in Kopaguda to the steel mill.
The tribals, a loyal Congress vote bank, had stayed silent since the state government had pledged that if the Centre sold the plant, the state government would buy it. Even before he took office in 2018, the House felt tribal outrage over the subject.
In 2016, the party staged a 20-kilometer padayatra from Nagarnar to Jagdalpur to demonstrate support for tribals and to protest the disinvestment decision. The state government, however, is not permitted to participate in the disinvestment process launched by the Department of Investment and Public Asset Management (DIPAM). But, Congress’ Bastar Legislator Lakheshwar Baghel has set a January 26, 2023 deadline for the Centre to fulfill its pledge of a hospital and schools, or it would cease transporting iron ore from Bastar to the rest of the country.
Let’s see where the tale of the NMDC steel plant that revolves around the narratives of privatization and politics moves ahead.
Edited by Prakriti Arora