Transcript Project Woodland

Acquisition of Millennium Steel, Thailand
Mumbai
December 22, 2005
Agenda
 Tata Steel Strategy
 Thai Economy
 Brief profile of Millennium Steel
 Transaction structure and values
 Areas of value unlock and integration
 Timelines
2
2
Tata Steel strategy
 Build stronger base in India
 De-integrated dispersal of facilities in select geographies
 Ownership and development of raw material sources
 Access to captive ports and other dedicated logistics facilities
 Size of 20 - 25 mtpa by 2015
 ‘More from Steel’ via branding and value added products
 Pursue strategic acquisitions
3
3
Agenda
 Tata Steel Strategy
 Thai Economy
 Brief profile of Millennium Steel
 Transaction structure and values
 Areas of value unlock and integration
 Timelines
4
4
Thai Economy
Real GDP % YoY
Nominal GDP
: US$ 161.5
bn
14
11.2
12
9.2
%
10
7.0
8
4.8
6
6.2
4.8
4.7
4.6
5.4
4
2
0
1980
1985
1990
1995
2000
2003
2004
2005E
2006E
Source : UBS
 GDP expected to grow @ 5.4% in 2006 (from 4.6% in 2005). Thai economy affected by
various shocks in 2005, including Tsunami, a severe draught and surge in fuel prices
 Per Capita GDP (2004 USD PPP) of Thai economy : US$ 8,020
 Sovereign Credit Rating of Thai Economy : Baa1 (by Moody’s) and BBB+ (by Standard &
Poor’s)
5
5
Thailand Market
Apparent Steel Consumption
14
12
MTPA
10
10.0
9.1
8.0
8.8
7.6
12.7
7.5
6.3
8
6
11.0
Longs
30%
6.6
3.8
4
Flats
70%
2
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Source : IISI
 Market characteristics
 Average capacity utilisation in Steel Industry is ~ 58% in Thailand
 The infrastructure plan laid out by the Government is the key to the future
demand growth
6
6
Thailand Long Products Market Outlook
 The Thai long products market is expected to grow at a rate of 6%-8% over
the next five years
 Two drivers of growth for the long products:
 Spending on infrastructure by the government: will be a significant source for
growth in demand for rebars and construction grade wire rods
 Growth of the auto industry: this is expected to boost the demand for higher and
specialty grades of long products
 The Thai market is poised to change in terms of quality mix
 Government slated to prescribe stringent norms for construction steel
 Demand for specialty grades increasing on the back of growth of sophisticated
user industries like auto and engineering
7
7
Thailand Infrastructure Spending Programme
Infrastructure spending
14,000
USD mn
12,000
11,711
11,205
2008
2009
10,313
10,000
8,000
6,145
6,000
4,000
2,000
1,614
0
2005
2006
2007
 Almost half of the spending will be in the mass-transit and transportation
segments, which have a direct impact on the outlook for longs market
 Implementation of these projects will imply that public spending will take
over from consumption and export sectors as the engine for growth
8
8
Mass Transit & Infrastructure …Government Projects
2005 - 2009
Million Baht
1. Mass Transit
2005
2006
2007
2008
2009
2005-09
1
47
98
144
134
423
2. Transportation Projects
35
48
81
80
84
329
3. Housing Projects
15
54
64
57
23
214
-
38
54
54
54
200
0
14
27
27
27
96
2
12
29
27
26
96
7. Others
15
42
73
96
116
342
Total
67
255
428
486
465
1,701
4. Water Circulating System
Projects
5. Academic Facilities
Projects
6. Hospital Facilities Projects
Source : Ministry of Finance, Thailand
9
9
Agenda
 Tata Steel Strategy
 Thai Economy
 Brief profile of Millennium Steel
 Transaction structure and values
 Areas of value unlock and integration
 Timelines
10
10
Millennium Steel : Overview
 Millennium Steel (MS) is the largest steel
Millennium Steel Group Structure
producer in Thailand
 Accounts for 36% of steel melting
Millennium Steel
and 24% of rolling capacity in
Thailand
99.52%
NTS Steel Group
 Manufactures long products for use
in the construction industry
 MS is a holding company and operates
99.95%
The Siam
Iron and
Steel
(2001) Co.
99.99%
The Siam
Construction
Steel Co.
Millennium Steel Shareholding Pattern
through three operating companies
 Was formed in 2002 through a
merger of NTS Steel with the two
steel units of the Cementhai Group
 The merger was encouraged by the
Thai government and the lenders to
improve the health of the companies
after the Asian crisis
11
Public
and
Others
37%
Cementh
ai
Holding
40%
Institutio
ns
23%
11
Millennium Steel, Thailand : Location and Facilities

The company has facilities for steelmaking with a total capacity of 1.2 mtpa

The company produces steel through scrap-fed electric arc furnace route

The company produces rebars, wire rods and small sections for the construction
industries
Unit-wise Rolling Capacity, tpa
Rolling
Location
Steelmaking
Rebar
SISCO
Saraburi
200,000
SCSC
Rayong
500,000
500,000
NTS
Chonburi
500,000
400,000
400,000
1,200,000
900,000
630,000
Total
-
Wire Rods Small Sections
230,000
-
170,000
Total
400,000
-
500,000
-
800,000
170,000
1,700,000
Source: Company information
The Siam Iron and Steel Co.
Ban Mor, Saraburi Province
The Siam Construction Steel Co.
Ampher Muang, Rayong
NTS Steel Group
Sriracha, Chonburi Province
12
12
Consolidated Financial Performance
US$ million
Net Sales
EBITDA
EBITDA Margin
Net Income
Net Income Margin
US$ million
Shareholders Equity
Common shares
Preferred shares
Warrants
Convertible Debentures
Reserves
Sub-total
Minority Interest
Total shareholders Equity
Net Debts
Exchange Rate: THB/US$
Jan-Dec 2003
249.0
40.7
16%
(1.3)
-1%
Jan-Dec 2004
419.0
73.7
18%
30.2
7%
Jan- Sept 2005
352.9
34.8
10%
10.9
3%
As on
31st Dec'03
As on
31st Dec'04
As on
30th Sept'05
98.2
39.5
3.2
19.5
115.6
39.9
3.3
5.0
112.3
38.3
3.2
4.9
58.4
218.8
0.2
219.0
260.2
40.51
99.7
263.5
0.2
263.7
247.0
39.71
106.8
265.5
0.2
265.7
236.0
41.00
13
13
Agenda
 Tata Steel Strategy
 Thai Economy
 Brief profile of Millennium Steel
 Transaction structure and values
 Areas of value unlock and integration
 Timelines
14
14
Transaction Rationale
 The investment in Millennium Steel is a significant progression in Tata
Steel's globalisation initiatives and, together with the earlier acquisition of
NatSteel’s steel business, will significantly enhance its market position in
South East Asia
 The acquisition will have a strong fit with Tata Steel’s strategic expansion
plans and there are likely to be significant synergy benefits in the future as
a consequence of the transaction
 Will enable Tata Steel to focus on its de-integration production strategy
15
15
Terms of Definitive Agreements with CHC
 Cementhai Holding Company (CHC), the largest shareholder of MS with a
40% equity stake (prior to the new shares subscribed to by Tata Steel) have
committed to sell their shares into a voluntary tender offer that Tata Steel will
make for all of the equity and preference shares of MS subject to certain
conditions precedent.
 Conditions precedent to the transaction include
 Shareholders and creditors approvals for the issuance of new shares
equivalent to 24.99% stake in the expanded capital of MS;
 amendment of the Articles of Association of MS to enable 100% foreign
ownership in MS; and
 regulatory approvals including the Board of Investment in Thailand.
 The tender offer and the subscription to new shares by Tata Steel will be at
Baht 1.15 per share.
16
16
Evolution of Holding Structure
Stage 1:
Preferential allotment of 24.99% of
fresh equity of MS to Tata Steel
Current
CHC
Others
41%
59%
Tata
Steel
24.99%
CHC
31%
MS
MS
17
Others
44.01%
Stage 2 - Final
Tata
Steel
Others
44%
to
0%
56%
to
100%
MS
17
Transaction Cash Distribution
No of shares to be acquired = 4716 mn to 8422 mn
(56%)
(100%)
Total Cash
1.Preferential Allotment of
24.99% Equity
Cash into MS
No of shares = 2105 mn
@1.15 THB/share
Cash = THB 2420 mn
(USD 58 mn)
2.Purchase of 31% Equity of
CHC on expanded equity
base of MS
Cash to CHC
No of shares = 2611 mn
@ 1.15 THB / share
Cash = THB 3003 mn
(USD 72 mn)
:
THB 5423 to 9685 mn
(USD 131 to 233 mn)
3.Purchase of balance 44%
Equity of from the market
Others
No of shares = 0 to 3706 mn
@ 1.15 THB / share
Cash = THB 0 to 4262 mn
(USD 0 to 103 mn)
Total Cash outgo for 56% stake in expanded capital of MS, before open offer will be approximately US$ 130 million
18
18
Agenda
 Tata Steel Strategy
 Thai Economy
 Brief profile of Millennium Steel
 Transaction structure and values
 Areas of value unlock and integration
 Timelines
19
19
Areas of value unlocks and integration
 MS has a dominant position in the market (~ 25% market share in long
products)
 Most of plant and equipment erected in 1990s
 comparatively new and high quality plant & equipment
 MS’ operating efficiency evident from their cost-competitiveness despite 60%
utilisation
 The company owns brands which are well established and known in the Thai
market
 The company has good quality assets with potential to improve
 Change in product mix towards high margin products
 Efficiency improvements at various production stages
 Significant value can be created from synergies with Tata Steel through
billet supply
20
20
Agenda
 Tata Steel Strategy
 Thai Economy
 Brief profile of Millennium Steel
 Transaction structure and values
 Areas of value unlock and integration
 Timelines
21
21
Transaction Steps : Expected to get completed by
2nd quarter of 2006
 To achieve Tata Steel’s objectives, the transaction is envisaged to be
sequenced as depicted here
Step-1
Step-2
Step-3
Tata Steel signs an
agreement with CHC
pursuant to which CHC
will tender their shares
to Tata Steel in the
voluntary tender offer;
Tata Steel will make an
offer to the board of MS
to make a voluntary
tender offer to MS
shareholders subject
to:
CHC will also be
obliged to vote in
favour of changing the
articles of MS to
facilitate this
transaction
(a) Being issued 24.99%
new shares
(b) Articles of the
company being
changed
(c) Other approvals
which may be required
being obtained
22
MS Board to call for a
general meeting of the
shareholders of MS to
consider the special
resolutions for issue of
new shares and change
of articles ;
Step-4
On the basis of
shareholders approval,
if obtained, Tata Steel
will be issued the new
shares and Tata Steel
will in turn make the
voluntary tender offer
Similarly, resolutions
for changing articles of
the subsidiaries to be
moved;
Application or change
of BoI approvals to be
made
22
23
23