India's Ispat Industries to Invest $553.2 Million in New Projects Through 2012

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Researched by Industrial Info Resources (Sugar Land, Texas)--Indian iron and steel maker Ispat Industries Limited (BSE:500305) (Kolkata, West Bengal), has announced plans to invest $553.2 million in new projects, including development of a captive power plant, iron pellet plants and coke oven plants. The announcement was made by Pramod Mittal, chairman of Ispat Industries, following the company's annual general meeting last month. All projects will be located at Ispat's Dolvi facility in Maharashtra. Mittal indicated that the global economic slowdown had delayed the investments.

Ispat will invest $102.9 million on a 110-MW captive power plant, which will be developed in two phases of 55 MW each. The project is expected to be completed by 2012.

A coke oven plant, with a capacity of 1 million tons per year, will be constructed at a cost of $235.8 million in a 26:74 joint venture with Stemcor Holdings (London, England). Mittal indicated that financial closure for the coke oven project will be attained by November, and construction of the plant will begin 20 to 21 months later. SBI Capital (Mumbai) has been appointed to arrange for debt financing. Ispat's total cash outflow for the coke oven plant is expected to be no more than $10.72 million, with an equity contribution of about $20.57 million. The company will address land and other infrastructure-related requirements for this project.

The firm's proposed $128.6 million, 2 million-ton-per-year iron pellet plant, which earlier was planned to be developed at Vishakhapatnam, Andhra Pradesh, will be constructed at Dolvi. Iron pellets are lumps of concentrated iron ore used to produce steel in blast furnaces. The process of finding a joint venture partner for the project is under way. Ispat is likely to follow the model of financing and operations adopted for the coke oven plant. The company is willing to work as a minority partner, with a 26% stake in the iron pellet project.

Mittal is optimistic that once these projects commence operations, the firm's earnings before interest, taxes, depreciation and amortization will increase to 35% of sales; presently, those earnings are about 22%.

Ispat also will invest $85.78 million to acquire iron and coal mine assets. According to reports, the company is acquiring stakes up to 40% in iron ore mines in Brazil and coal mines in Mozambique.

Ispat was established by in 1952 by M L Mittal, father of steel czar L N Mittal of ArcelorMittal (NYSE:MT). Presently, Pramod and Vinod Mittal, L N Mittal's younger brothers, manage the operations of the company. In June, there were reports of Pramod and Vinod Mittal pledging their entire stake in Ispat in an attempt to restructure the beleaguered company's mounting debts. Industry sources indicate that the last tranche of 9.1% shares were pledged in May. Financial experts have observed that this move was made to develop a debt-restructuring package with the assistance of financial institutions, which will defer the repayment timelines. In 2000, Ispat resorted to a debt-restructuring package, when the steel industry faced difficult times and a slump in demand.

Ispat, with a present market capitalization of $648 million, has debts of about $1.71 billion. For the quarter ending December 2008, the company reported a loss of $139.6 million. Steel experts have indicated that a lack of sustained supply of raw materials, absence of facilities to improve quality of coke, and non-availability of continuous power supply were hampering the company's performance. Ispat, which relies on India's state-controlled metals and mining company, NMDC Limited (BSE:526371) (Hyderabad, Andhra Pradesh), for a supply of raw materials, is now looking to become self-sufficient. Ispat's capital expenditure plans are aimed toward strengthening the company's infrastructure.

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