As we write and speak of steel slowdown, protection measures for the steel industry and of consolidations, Mergers & Acquisitions to cut losses, the GOI has announced strategic divestment of 3 steel plants of the Maharatna PSU SAIL. The government has approved sale of state-owned SAIL’s 3 special steel units viz Alloy Steels Plant (ASP), Salem Steel Plant (SSP) and Visvesvaraya Iron and Steel Plant (VISP).
The move underpins SAIL’s need for strategic divestment to cut losses. The government has budgeted to raise INR 15,000 crore from strategic disinvestment in 2017-18. The sale of these three units is likely to happen only in the next financial year beginning April.
In the run-up to the sale, SAIL has sought for advisors for transaction from professional consulting firms, investment bankers and financial institutions to provide advisory services and manage the disinvestment process.
“The government of India has ‘in-principle’ decided for strategic disinvestment of ASP, SSP and VISP of Steel Authority of India Ltd with transfer of management control,” SAIL said in the request for proposal (RFP) for appointing advisors.
The role of the transaction advisor will be crucial to the sale. The advisory firm will chart out the modalities of the disinvestment process of the three steel plants and prepare a detailed operational scheme to successfully implement the process, indicating tentative timelines for each activity.
Whether the sale will be carried out via bidding or auction will be decided by the advisory firm. The valuation of the plants will be carried out and the advisor will help SAIL in fixing the range of the fair reserve price thereafter. The reserve price will be based on valuation methods like discounted cash flow, relative valuation, and asset based valuation.
The government’s decision to divest the largest steel PSU comes at a time when steel industry losses are heavy and steelmakers are looking for various fund raising routes. Strategic divestment of an asset is one of such routes. Meanwhile, debt financing, equity based fund infusion are other routes to raise funds.