Tata Steel Forms Joint Venture to Set Up $5 Billion Steel Complex in Vietnam

Researched by Industrial Info Resources (Sugar Land, Texas)--Within days of withdrawing a proposed investment plan of $3 billion in Bangladesh because of the country's prevalent political instability and the non-committal stance of the government, Tata Steel (BOM:500470) (Mumbai, India) firmed up its plans of developing a steel complex with a capacity of 4.5 million tons per year in Vietnam. The project will have an estimated cost of $5 billion. Tata Steel Global Holding Private Limited (Singapore), a wholly owned subsidiary of Tata Steel, has entered into a joint venture agreement with Vietnam Steel Corporation (VSC) (Hanoi, Vietnam), the country's largest steel producer, and Vietnam Cement Industries Corporation (VICEM) (Hanoi) to build an integrated steel plant in the Vung Ang Economic Zone in the Ha Tinh province.

Tata Steel Global has been set up to function as a global holding company for all of Tata Steel's international assets. A $12 billion enterprise, the company came into operation August 1, 2008, with a large and diversified asset base that enables it to raise funds for the group's overseas ventures in the coal, iron ore and steel sectors, through debt, equity, and quasi-equity financing. Tata Steel has reduced its liabilities by $250 million by swapping foreign currency loans of $1.65 billion in Japanese yen and $400 million in U.S. dollars. The firm has also reported that it has managed to contain working capital costs and that current cashflow from operations is about $500 million per quarter, which allows the company sufficient leeway to finance new ventures.

Tata Steel will hold a majority stake of 65% in the venture, while VSC will hold a 30% stake, and VICEM will own the remaining 5%. The complex will be built in three phases over a period of 10 years. Phase I will involve the construction of a cold rolling mill and is slated for completion by late 2010. Iron for the steel complex will be procured from the Thach Khe mines in the Ha Tinh province. Tata Steel also hopes to acquire a 30% stake in the mining project.

Vietnam, which produced 4.5 million tons of steel products in the last fiscal year, accounted for less than 0.5% of the world's annual production of 1.34 billion tons of steel. VSC, which produces about 5 million tons of steel per year, will double its production capacity when the Vung Ang integrated steel complex comes into operation. The project is expected to generate up to 20,000 jobs when completed.

Tata Steel and VSC had entered into agreements for the project in June 2007, after which feasibility studies were conducted. Definitive agreements were signed this month. Essar Steel (Mumbai), POSCO (NYSE:PKX) (Pohang, South Korea) and Baosteel (Shanghai, China) were also reported to be in the race with Tata Steel for the project. The steel complex is being viewed as a significant step towards strengthening Vietnam's steel industry through optimum utilization of technology expertise, generation of employment and foreign exchange earnings.

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