India's iron ore export tax pressures Stemcor's asset sale

By Manolo Serapio Jr

SINGAPORE (Reuters) - A new Indian export tax on iron ore pellets is weighing on the sale of the local assets of indebted British steel trader Stemcor, with at least one bidder saying the deal was now less lucrative than they had initially expected.

India began implementing a five percent tax on exports of iron ore pellets on January 27, a week after the deadline for the submission of financial bids for Stemcor's India assets.

At least two major local firms - Jindal Steel and Power Ltd(NSI:JINDALSTEL) and JSW Steel Ltd(NSI:JSWSTEEL.NS - News) - have confirmed they had bid for the assets, which include iron ore mines and a 4-million-tonne a year pellet plant in the eastern Odisha state, collectively valued by an industry source at about $700-$750 million.

"It does affect it because if you're willing to do exports you lose that much more money which is equal to the export tax," Ravi Uppal, chief executive of Jindal Steel and Power, told Reuters by telephone when asked about the impact of the tax on the valuation of Stemcor's assets.

Uppal declined to comment further, but a senior company official, who declined to be identified because he is not authorised to speak to the media, said Jindal was still interested in the deal, but only if the price was "low enough".

Stemcor, one of the world's largest independent steel traders, declined to comment on the tax but said the sale process was making progress.

"We continue to have discussions with a number of parties regarding the sale," Charles Armitstead, a Stemcor spokesman, told Reuters via email.

The five percent export tax equates to an additional 500 rupees, or $8, per tonne in cost for an exporter, said Dhruv Goel, managing partner at industry consultancy SteelMint.

MAIN ATTRACTION

The main attraction of Stemcor's assets for the steelmakers are its iron ore mines, especially as mining bans and restrictions in the key producing states of Goa and Karnataka have slashed domestic supplies.

The bidders are not as keen on Stemcor's pellet plant because of stiff competition as more companies set up new facilities. Domestic capacity for iron ore pellets is seen rising to around 80 million tonnes in a couple of years from 50-55 million tonnes now, said SteelMint's Goel.

Stemcor, a private British firm controlled by members of the Oppenheimer family, is raising money after failing to repay an $850 million debt in May last year. It reached a deal with lenders to extend a standstill agreement to the end of February that allows it to restructure a $1.25 billion debt.

(Additional reporting by Silvia Antonioli and Maytaal Angel in LONDON; Editing by Miral Fahmy)