The follow-on-offer (FPO) by the country?s largest steel manufacturer, Steel Authority of India Ltd (SAIL), which the Cabinet cleared on Thursday, comes at the right time as the company is in the midst of an expansion programme to raise its production capacity from the current 13.82 million tonne (mt) to 23 mt by 2012.

With the government divesting 10% of its stake and SAIL issuing fresh equity equivalent to 10%, the total mop-up would be around Rs 16,000 crore. So, the company would get an additional capital of Rs 8,000 crore. This is a good way of mopping up funds, which can be leveraged against raising debt to fund the expansion programme. The expansion programme for SAIL is quite critical because unlike, say, Tata Steel, which grew through acquisition of the Anglo-Dutch firm Corus, the state-owned firm has decided not to look beyond the domestic boundaries.

The company?s chairman, SK Roongta, had earlier told me that since the demand for steel was growing in India rather than in the overseas market, there was no sense in going for overseas acquisition as that would mean importing that steel back into the country. Doing this would not be easy since the country?s port capacities are not adequate to handle large imports, leading to delays. Thus, SAIL has decided to use its resources internally to acquire companies rather than going abroad.

Ideally, it would have been prudent for the government to have brought its stake below 51% so that the company could have been freed from political bondage?even after the FPO the government?s stake will be around 69%. SAIL?s case for more autonomy is perfectly justified. Many would have forgotten that the company posted the worst losses in its history during 1999-2000 and the government had to come up with business-cum-financial restructuring for it. The turnaround thereafter was fast and firm and the company adhered to all the tenets outlined by the government in the restructuring package. The turnaround was so concrete that the divestment planned of its certain non-strategic businesses were called off. It?s another matter that it never received promising bids.

?rishi.raj@expressindia.com