Long-steel output strengthens: Tata Steel acquisition of NINL

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On Monday, Moody’s Investors Service stated that Tata Steel’s acquisition of Neelachal Ispat Nigam Ltd (NINL) is credit positive as it increases the long-steel production capacity of the subsidiary and its reserves of iron ore.

In January, Tata Steel declared the winning the tender for acquiring a 93.71% stake in Odisha-based NINL for a transaction price of Rs 12,100 crore.

Moody’s Investors Service mentioned that on January 31, Tata Steel Ltd (TSL, Ba1 stable) disclosed that Tata Steel Long Products Ltd (TSLP), 74 percent owned subsidiary of TSL, will purchase a 93.7 percent stake in Neelachal Ispat Nigam.

The purchase gives TSL an entrance to 1.1 million tonnes per annum (MTPA) of the long-steel producing capacity of NINL, iron ore reserves of 100 million tonnes, and 2500 acres of land.

The purchase of NINL is significant for Tata Steel to construct a dedicated long products complex which would be located to leverage collaboration with the shared infrastructure of Tata Steel in the area.

Even so, NINL is non-profit making. The Moody’s Investors Service added that they expect that the purchase price mainly considers the steel plant, reserves of iron ore, and the acres of land that can help in capacity expansion.

During the acquired operations are considerably smaller than 32.5 million tonnes per annum (MTPA) of TSL’s current global capacity, as well as its 19.6 million tonnes per annum (MTPA) capacity in India, it is credit positive as it increases the long steel production capacity of TSL and iron ore reserves.

Through the mixture of internal accruals and debt, TSL anticipates to finance the acquisition.

The statement declared that even, supposing the USD.1.6 billion enterprise value is paid wholly via debt, they evaluate at September 2021, TSL’s pro forma leverage would increase to 1.8x.

The peak pro forma leverage would be lower than 1.8x, to the level that the purchase is funded through internal accruals. Still, with a rating downgrade leverage threshold of approximately 3.5x, there is an adequate buffer in TSL’s financial metrics to put up the acquisition proposed.

TSL has declined approximately 30 percent of its adjusted gross consolidated debt since March 2020, which includes interest-bearing customer advances that are treated as debt.

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