Stemcor Indias valuations fall as litigation takes toll

Written by Promit Mukherjee | Mumbai | Updated: Jan 9 2014, 20:33pm hrs
SteelStemcor India?s current value being pegged at Rs 3,500-4,000 crore. PTI
Stemcor India, which had put up its assets in India for sale since September, has seen its valuations tumble to almost 50% of what was earlier quoted when the asset was first put on the block, say sources.

According to sources in companies currently looking at buying the assets, their current value is being pegged at not more than R3,500-4,000 crore, or roughly in the range of $6 million, against an earlier estimated figure of $1-1.2 billion. This is a downward revision since September 2013 and ushers in better negotiation power for companies like JSW Steel, Jindal Steel and Power, Essel Mining of the Aditya Birla Group, Essar Steel and Visa Steel.

In fact, with the interested bidders now progressing with their due-diligence of the two main assets of Stemcor India and their accounts, startling revelations have come out forcing the interested companies to look at Stemcor India as not an out-an-out attractive buyout.

This has been accentuated with the Justice MB Shah Commissions debilitating report released on December 26 accusing most of the mining companies in Orissa of being involved in illegal mining.

The Commission report had said all 55 mines around the Baitarni river and its tributaries should not be allowed to operate till the time their environmental approvals are revisited. Almost all major companies are part of the Baitarni river iron ore belt and Aryan Mining is one of them, said a top official in the Orissa governments mining department, while refusing to divulge any more information.

Aryan Mining, which is the shining jewel in Stemcor Indias crown, is also embroiled in litigations apart from the allegations of the Commission report. In 2012-13, the company had to keep its operations shut for almost seven months as the state government had initiated investigation of various statutory compliance being carried out by the mining department.

In November 2012, mining was suspended as a new policy was announced by the state government, which said the companys mining lease would be renewed only if the extracted ore is used for captive consumption.

However, on an application by the company to revisional authority, a stay order was issued against the suspension of mining operations and despatches resumed in February-March 2013, the companys annual statement said.

In response, the state government, too, filed a writ petition in the High Court Orissa, Cuttack, against the stay order of the revisional authority.

The company has also been slapped with a fine of Rs 507.82 crore by the state towards recovery of price of ore for alleged excess mining for the period from 2000-01 to 2009-10. This matter, too, is being contested by the company, as per the company annual statements published in mid-2013.

When contacted, Charles Armistead, spokesperson of the company said in an email response that since Stemcor India is a private company, it would not like to share the details on companys production, sales and profitability numbers.

For the year ended March 2013, Aryan Mining posted a sales figure of R312.25 crore and profit before tax at R180.37 crore, compared with R614.58 core and R387.15 crore, respectively, during the previous fiscal of 2011-12, a drop of almost 50%.

However, the current year is expected to be good as according to the details available from the department of mines in Orissa, the company has so far clocked a production of 2.6 mt of iron ore from one of its mines in the Koira region, which is against the permissible limit of 3 mtpa allowed to the company.

The assets of Stemcor are not completely clean and there are several issues. Therefore, the valuation should not be beyond R4,000 crore, said an official of a company, which is one of the interested bidders for the companys assets.

According to reports, the project will suck up to 480 cubic metres per hour of water from the Baitarni river besides having being built without a valid forest clearance.

Stemcor is also fighting a legal battle with ICICI Bank.