The AV Birla group flagship Grasim Industries on Tuesday said it has sold its sponge iron business — Vikram Ispat — to Welspun Power and Steel for Rs 1,030 crore. Grasim, in a statement issued here, said the company would transfer its Vikram Ispat undertaking into a new special purpose vehicle (SPV), to be formed as a subsidiary company of Grasim. The SPV would be funded by Welspun Power and Steel through equity investment and induction of debt to acquire the SPV and sponge iron business.
The SPV would use the funds inducted by Welspun to make the payment to Grasim. The transaction is expected to be completed within the next six months, the statement added. Ravi Kastia, group executive president and business head, Grasim, told ET that the company would plough back the money into its core businesses of viscose-staple fibre and cement.
On Tuesday, Grasim shares fell marginally to close at Rs 2,217.20 on the Bombay Stock Exchange.
Sponge iron is used to make steel by all Indian producers and is a substitute for steel melting scrap. Currently, sponge iron producers operate with a margin of around 13-15%, depending upon the cost of iron ore and coal supplies. India produced 16.28 million tonne of sponge iron in 2006-07. Grasim’s plant was a standalone unit and did not have steel-making capacity. Gas availability was also a problem. The plant’s production was often affected due to irregular gas supplies.
Since natural gas was in short supply, the government’s gas allocation programme gave the highest priority to fertiliser and power. Sponge iron and steel were farther down the list.
Grasim commissioned the sponge iron business in 1993. The plant at the Raigad district of Maharashtra. Vikram Ispat generated sales of Rs 50 crore during FY08.
Vikram Ispat, with a capacity of 9,00,000 tpa, is the largest merchant producer of sponge iron in India. The unit can produce both HBI (hot briquetted iron) and DRI (directly reduced iron) from the same reactor. Welspun Power and Steel is a Gujarat-based closely-held company. It manufactures sponge iron at its plant situated at Anjar, Gujarat.
Source: Economic Times