The Tata Steel board on Thursday decided to sell its entire stake of 26.27% in Riversdale Mining for A$1.06 billion, signalling an end to the year-long speculation of whether the Jamshedpur based steelmaker would exit from the investment it made in 2007. The investment in Riversdale is currently held by Tata Steel Global Minerals Holding, an indirect wholly-owned subsidiary of Tata Steel.
At 10:00 am, shares of Tata Steel were trading up 2.52% at Rs 567.10 on the Bombay Stock Exchange. It touched a high of Rs 571.50 and a low of Rs 564 in trade so far.
However, analysts are cautious, though it could boost cash to fund growth projects. Proceeds could also lower net gearing interest cost and lift FY12 earnings per share by 5 percent, Bank of America Merrill Lynch said in a note. However, the Wall Street bank retained its estimate as lower steel prices and higher coking coal costs were seen hurting.
Merrill Lynch, which has an 'underperform' rating with a price target of Rs 550, stayed cautious "due to moderating domestic fundamentals and lower domestic margins led by lower prices and higher costs and potential margin squeeze at Corus post June quarter."
Following an ongoing review of its strategic investments globally, the company's board took the decision to divest its entire shareholding in Riversdale Mining, following Rio Tinto's open offer. The Anglo-Dutch miner Rio Tinto holds 73.2% stake in Riversdale, which has around 13 billion tonnes coal reserves in its two projects in Mozambique - Benga and Zambeze.
Riversdale has been a takeover target for Rio Tinto since December 2010. Tata Steel said it took the decision as it does not want to hold on to the stake without any joint venture agreement with the majority shareholder in Riversdale Mining.
Tata Steel along with Brazilian steel maker CSN, has been continuously opposing Rio's buying stake in Riversdale. CSN, however, backed out and sold its entire 19.9% stake to Rio Tinto.
Undetered by the CSN back out, Tata Steel maintained that it was more interested in getting coal from Riversdale to feed its European operations than making a quick buck. In a statement to the Bombay Stock Exchange, Tata Steel said the sale consideration of A$1.06 billion represents around 100% appreciation of value in less than four years since the first investment.
Earlier, Tata Steel had entered into a $100-million agreement for a 35% stake in two coal tenements of Riversdale in Mozambique in 2007. Tata Steel also said it will focus on its 35% stake in Riversdale (Mauritius ), a subsidiary of Riversdale Mining, which is developing coal assets in Mozambique and will continue in the joint venture with Riversdale Mining in Mozambique. The Benga project, located in Tete province of Mozambique, is a joint venture between Riversdale that owns a 65% stake and Tata Steel.
Source: www.economictimes.com
Ravi Jhawar
Summer Intern-Technical Analyst
DENIP Consultants Pvt. Ltd.
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