SAIL to Rebuild and Operate Malvika Steel Mill Within Two Years

Malvika Steel, formerly promoted by the Usha Group (Kolkata, West Bengal), has been taken over by India's state-run Steel Authority of India Limited (SAIL) (New Delhi). SAIL acquired the mill at an auction after outbidding ArcelorMittal (NYSE:MT) (Luxembourg City, Luxembourg) and the Jaypee Group (New Delhi).

According to a report from Industrial Info Resources (Sugar Land, TX), India's Steel Minister Ram Vilas Paswan launched SAIL's project for rebuilding the currently nonfunctioning mill and bringing it on stream in two years. Paswan said SAIL has a successful history of taking over sick units and making them productive. The mill is scheduled for commissioning on January 26, 2011. Paswan also said the Steel Ministry had been working on various strategies to reopen the Malvika Steel unit, which has remained closed for more than 10 years.

The project was originally set up in 1995-96 and shut down in 1998 after about two years of producing pig iron. SAIL has now taken over the assets of the company for about $41 million. The 740-acre project site is located at the Jagdishpur Industrial Area in Uttar Pradesh. According to a SAIL news release, the mill will require an additional investment of about $58.8 million.

The product mix of the proposed mill will be finalized after a detailed study. The Usha Group had planned to set up an integrated steel mill with a capacity of 650,000 tons per year at an investment of about $588 million. The facility was to include a caster, an oxygen plant, a rolling mill, a sinter plant and a steel melting shop. The facility consists of a 7.8-megawatt captive power plant, two pig casting machines with capacities of 1,200 tons per day each, and two blast furnaces of 350 cubic meters each. The proximity of the plant site to the high consumption centers of Uttar Pradesh will prove to be an advantage for SAIL.

During the launch ceremony, SAIL Chairman S.K. Roongta requested help from Uttar Pradesh's government in meeting the project's water and electricity requirements. He told the government that SAIL would play the role of a model corporate citizen in rebuilding and operating the facility.

During the implementation of the original project plans, the Usha Group had borrowed nearly $353 million from a consortium of financial institutions and banks led by IFCI Limited (BSE:500106) (New Delhi). In 1998, about 1,000 out of 1,200 workers employed at the facility were laid off, and the company began defaulting on its loans from 2001. The company was subsequently taken over by the financial institutions that moved the Debt Recovery Tribunal (DRT) to sell off the company and recover whatever was possible. The DRT set a reserve price of about $40.5 million for the troubled unit. Initially the Jaypee Group, and then SAIL successfully satisfied the DRT's expectations. The Usha Group's internal ownership disputes and inability to show profits over the last few years had considerably delayed the process of takeover of the steel mill.