India’s ministry of steel has commenced work on exploring the option of merging Rashtriya Ispat Nigam Limited (RINL) with Steel Authority of India Limited (SAIL) to bail out the debt-ridden former steel producer, government sources have said.
“We do not want to privatise RINL. The option to merge the two government-owned steel companies looks to be the most viable, with RINL’s debt being taken over by SAIL. At the same time, synergies of operations and leveraging the assets of SAIL will also enable RINL to solve its major fundamental hindrance of not having captive raw material sources for iron ore and coking coal,” a source said.
RINL, India’s first shore-based integrated steel mill of 7.3 million mt per year, is facing its worst-ever financial crisis due to a working capital crunch and heavy production costs on account of sourcing iron ore and coking coal, the two main raw materials required for steelmaking, and severe loan liability due to expenditure incurred in capacity augmentation, the delay in clearing its outstanding borrowings from financial institutions, and increasing arrears towards procuring raw material from iron ore miner NMDC Limited.
While other government-run steel mills were allotted captive iron ore mines, RINL has not received any, resulting in annual losses of around $120 million every year in procurement costs.
A merger of RINL with SAIL to leverage SAIL’s resources and capabilities, particularly its captive mines, will stabilize RINL’s financial position and the monetization of idle assets of RINL like land would generate additional funds for the merged entity, the sources said.
Since early this year, RINL has shut down two of its three blast furnace due to a shortage of cash to procure coking coal. The operation of the third blast furnace is also threatened by dwindling stocks of raw materials.