Grasim to sell sponge iron unit to Welspun Power

Mumbai: Grasim Industries, an Aditya Birla Group company, said that it would sell its sponge iron business to Welspun Power and Steel Ltd, for Rs 1,030 crore.

In a statement issued, the company said it will hive off Vikram Ispat, the sponge iron business division, by way of ‘slump sale’ to the Gujarat-based company and the transaction is expected to be completed within the next six months.

A ‘slump sale’ is transfer of business undertaking for a lump-sum consideration without assigning values to individual assets and liabilities.

Mr Ravi Kastia, Business Head, Vikram Ispat, said the income from the sale would not be treated as business income and hence will not attract tax. The company would invest the proceeds in its core business of cement and fibre, he added.

Mr Kastia said sponge iron is not the company’s core business. Despite high raw material cost, the business has been profitable due to better price realisation.

Under a court approved scheme of arrangement, Grasim would transfer Vikram Ispat to an yet to be formed special purpose vehicle – a subsidiary of Grasim. The transaction was approved by the company’s board of directors during its meeting on Tuesday.

Commissioned in 1993, Vikram Ispat has a total capacity of nine lakh tonnes and recorded a turnover of Rs 950 crore in the financial year 2007-08.

For the quarter-ended March 31, 2008, the company’s production was down 20 per cent at 1.34 lakh tonnes, while the sales volume slipped 18 per cent to 1.40 lakh tonnes.

However, substantial increase in global scrap prices realisation improved 32 per cent to Rs 17,869 per tonne. The revenue was up 14 per cent to Rs 275 crore. Uncertainty in gas pricing remains a concern, the company said.

Welspun Power and Steel Ltd is a closely held company having its manufacturing unit at Anjar in Gujarat. Set up in 1985, the Welspun Group manufactures and exports terry towels, bed sheets, cotton yarn, polyester filament yarn, texturised and dyed yarns, bathrobes, Longitudinal Submerged Arc Welded (LSAW), spiral and Helical Submerged Arc Welded Pipes (HSAW) pipes, coatings, ingots/billets and TMT bars.

A part of the $1-billion Welspun Group, the company has facility to manufacture Ribbed Thermo Mechanically Treated (TMT) rebars. The heat treatment process ensures that the rebars meet stringent quality standards and exhibit higher strength, better ductility, bendability and weldability over the conventional bars used in the construction industry.

Shares of Grasim Industries closed at Rs 2,217.20, down 0.47 per cent on the BSE.

JM Financial was the advisor to Grasim for the deal.