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Rediff News  All News  » Business » Unitech seeks buyers for Orissa Sponge stake

Unitech seeks buyers for Orissa Sponge stake

Last updated on: December 24, 2008 02:19 IST

In another bid to mobilise funds for the cash-strapped realty major Unitech, promoter Ramesh Chandra and his family are in talks with leading Indian and global steel giants to sell their 25 per cent stake in Bhubaneswar-headquartered Orissa Sponge Iron & Steel Ltd.

Investment banks said the Chandras, who bought the stake sometime in 2006 and 2007, are in talks with Korean steel giant Posco, which is implementing a 12-million-tonne project -- one of the largest in India's steel industry -- in the state, and Delhi-based Bhushan Steel, which owns 6 per cent in the firm.

"The company is also in talks with two global giants and two domestic companies," sources said.

A Posco spokesman said he had no information about the transaction and Bhushan Steel Managing Director Neeraj Singhal denied that the company was negotiating with the Chandras.

"It is an investment decision. They are not interested in staying invested because steel prices are expected to be under pressure," he added.

The Chandras are expecting to close the deal at an enterprise value of around Rs 2,000 crore, which means they expect Rs 500 crore for their stake. The move is part of a series of measures Unitech, India's second-largest realty company is taking to raise funds and reduce debt of Rs 8,000 crore.

The Orissa Sponge share price gained sharply in the last two weeks and is trading at Rs 93 against Rs 56 on December 8. Its market capitalisation is around Rs 300 crore after adjusting for warrants issued earlier this year.

Incorporated in 1979, Orissa Sponge has iron ores reserves of around 120 million tonne and coal reserves of a similar amount. The company has sponge iron and steel billet plants in Palaspanga (Orissa) with an installed capacity of 2.5 lakh tonnes.

Sanjay Chandra, Unitech managing director, declined to comment. Orissa Sponge Managing Director Munir Mohanty did not answer calls or text messages to his mobile phone.

Although the Chandras are selling 25 per cent, the buyer will eventually acquire a majority stake -- at least 45 per cent -- owing to a mandatory 20 per cent open offer following the deal plus some purchases from institutional investors that have expressed interest in exiting.

Orissa Sponge's main promoters are Prashant Kumar Mohanty and his investment unit Torsteel Research Foundation India which own a little over 40 per cent.

Arun Kumar in New Delhi