Synopsis:
The proposed sale of a majority stake in NMDC Steel, a subsidiary of government-owned NMDC, has been delayed due to upcoming Lok Sabha elections, reports Financial Express. The Congress party, which governs Chhattisgarh where the plant is based, opposes the sale. Bidding is now expected to take place after the elections in May. NMDC has invested $3 billion in the new plant which has little to no implementation risk.
Article:
The auspices of strategic sales are often mired in political exigencies, and the case of NMDC Steel (NSL) offers no deviation. With a delay announced in financial bids for this Chhattisgarh-based steel manufacturer, the compendious effects of this procrastination emanate far beyond mere corporate dealings.
NSL is not some jejune enterprise. The parent company, NMDC, has already made a substantial investment of $3 billion in this nascent plant. The idoneous management has brought about virtually no risk in the implementation of this colossal endeavor. The plant is expected to produce 3 million metric tons per annum with its state-of-the-art hi-smelt technology.
The postponement of the sale, primarily due to a political imbroglio, might be a short-term expedient for the incumbent government in Chhattisgarh, helmed by the Congress party. But what does this dithering signify for the financial prospects of this promising venture? An appreciable amount, likely exceeding $1.5 billion, is expected to be contributed to the national treasury once the 50.79% stake is sold.
Expressions of interest (EoIs) were solicited early this year, and the market was eagerly awaiting the subsequent steps. The pertinacious investor interest suggests that this is no quotidian matter. It further intimates that the delay could indeed be a casus belli for market tension and may be perceived as a deterrent for international and domestic conglomerates.
Post its market debut, the share price of NSL has witnessed a rather sanguine uptick of 36%. This augments the contention that a strategic sale would far outstrip the current market valuation of the entity, especially with top domestic and global steel firms in the running.
It should be noted that following the successful sale of NINL for $1.63 billion earlier, NSL appears as the next prospective candidate for divestment. Steel remains a non-strategic sector; ergo, the government's game plan remains unequivocally geared toward privatization.
The extenuating circumstances of the upcoming elections have also made an indelible impact on the pace of disinvestment for the fiscal year. Against a revenue target of $6.8 billion, a paltry $1.07 billion has been accrued so far. This is surely a portentous sign for stakeholders who have been watching the government's fiscal policies with keen interest.
Conclusion:
In short, the postponement of the NMDC Steel sale serves as a prime example of how politics can complicate economic decisions. As the Lok Sabha elections approach, the bidding process is now in limbo, leaving investors and the government to grapple with the uncertainties this delay engenders.