June 04 2020
Tatas sell Riversdale stake for $1.1 bn
16 June 2011

 Seeing limited options left to hold on to its stake in Riversdale Mining, Tata Steel has decided to exit the Australia-based company after other shareholders sold their stake to Rio Tinto. 

The world's seventh largest steel manufacturer on Thursday said it is selling its entire 26.3% stake in the Australian coal miner to Rio Tinto for A$1,060 million ($1.12 billion, or about Rs 5,000 crore). The exit marks another bitter-sweet experience for theTata Group where it had to give up its interest after being nudged to a minority shareholder position. In May 2007, group company Tata Tea had to sell its stake in Energy Brands, maker of Glaceau vitamin water, after Coca-Cola offered to buy out Energy Brands. 

Like Tata Tea, Tata Steel too is making a killing from the stake sale in Riversdale. The company said that the consideration of $1.12 billion represents 100% appreciation of value in less than four years since it first invested in the mining company down under. Tata Steel checked into Riversdale in 2007 with a 3% stake. Then, over a period of time, it increased its holding in line with the Australian capital market rules to 26.3% and was the single largest shareholder of the Africa-focused miner. 

Though the company is selling off its entire interest in Riversdale, it will continue to hold 35% stake in Riversdale's Mozambique venture, which has a coal reserve of four billion tonnes. For its stake, in 2007 it had paid $86 million. The company said it will discuss with Rio Tinto to enhance its participation in the joint venture. Tata Steel plans to use the sale proceeds to strengthen its balance sheet and also to finance its capacity expansion in Jamshedpur and at other locations. As of March 2011, the company's consolidated net debt was $9.8 billion. 

Late last year, the dynamics at Riversdale changed with Rio Tinto making a bid for the Australian company, threatening Tata Steel's position. For Tata Steel, investments in assets like Riversdale are crucial to secure raw materials for its European operations, Corus, which account for almost two-thirds of its 28 million tonne global capacity. Tata Steel at that time had then said it will evaluate Rio's takeover bid in the context of other alternatives available to the company. As Tata Steel held on to its stake in Riversdale, there was speculation among a section of analysts that the Indian steel maker could go for a counter offer for Riversdale. 

Early this year, the Anglo-Australian giant won majority control of Riversdale with a $3.9-billion bid. With several shareholders selling their shares to Rio Tinto, the recent being Companhia Siderurgica Nacional (CSN), selling its entire chunk of 19.35% to the global miner, Tata Steel was left alone. The deal boosted Rio Tinto's holding in Riversdale to 73.20% and said it planned to delist the company. 

In a regulatory filing, the $26.64-billion Tata Steel said it has decided that it would not want to hold its equity investment in Riversdale, which is proposed to be delisted, without any joint venture agreement with the majority shareholder in the unlisted company. Prior to the announcement, the company's shares fell 1.5% to Rs 553 on the BSE. 



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