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Acquisition of Millennium Steel, Thailand December 22, 2005Mumbai.

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Presentation on theme: "Acquisition of Millennium Steel, Thailand December 22, 2005Mumbai."— Presentation transcript:

1 Acquisition of Millennium Steel, Thailand December 22, 2005Mumbai

2 2 2  Tata Steel Strategy  Thai Economy  Brief profile of Millennium Steel  Transaction structure and values  Areas of value unlock and integration  Timelines Agenda

3 3 3  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 mtpa by 2015  ‘More from Steel’ via branding and value added products  Pursue strategic acquisitions Tata Steel strategy

4 4 4  Tata Steel Strategy  Thai Economy  Brief profile of Millennium Steel  Transaction structure and values  Areas of value unlock and integration  Timelines Agenda

5 5 5 Thai Economy  GDP expected to 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) Nominal GDP : US$ bn Source : UBS

6 6 6 Thailand Market  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 Source : IISI

7 7 7 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

8 8 8 Thailand Infrastructure Spending Programme  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

9 9 9 Source : Ministry of Finance, Thailand Million Baht Mass Transit Transportation Projects Housing Projects Water Circulating System Projects Academic Facilities Projects Hospital Facilities Projects Others Total ,701 Mass Transit & Infrastructure …Government Projects

10 10  Tata Steel Strategy  Thai Economy  Brief profile of Millennium Steel  Transaction structure and values  Areas of value unlock and integration  Timelines Agenda

11 11 Millennium Steel : Overview  Millennium Steel (MS) is the largest steel producer in Thailand  Accounts for 36% of steel melting and 24% of rolling capacity in Thailand  Manufactures long products for use in the construction industry  MS is a holding company and operates 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 Millennium Steel Shareholding Pattern Millennium Steel Group Structure Millennium Steel NTS Steel Group The Siam Iron and Steel (2001) Co. The Siam Construction Steel Co % 99.95%99.99%

12 12 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 Source: Company information NTS Steel Group Sriracha, Chonburi Province The Siam Iron and Steel Co. Ban Mor, Saraburi Province The Siam Construction Steel Co. Ampher Muang, Rayong

13 13 Consolidated Financial Performance US$ millionJan-Dec 2003Jan-Dec 2004Jan- Sept 2005 Net Sales EBITDA EBITDA Margin16%18%10% Net Income (1.3) Net Income Margin-1%7%3% US$ million As on 31st Dec'03 As on 31st Dec'04 As on 30th Sept'05 Shareholders Equity Common shares Preferred shares Warrants Convertible Debentures Reserves Sub-total Minority Interest 0.2 Total shareholders Equity Net Debts Exchange Rate: THB/US$

14 14  Tata Steel Strategy  Thai Economy  Brief profile of Millennium Steel  Transaction structure and values  Areas of value unlock and integration  Timelines Agenda

15 15  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 Transaction Rationale

16 16 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.

17 17 Evolution of Holding Structure CHCOthers MS Tata Steel Others MS Tata Steel Others MS Current Stage 1: Stage 2 - Final CHC 41%59% 24.99% 56% to 100% 44% to 0% 31%44.01% Preferential allotment of 24.99% of fresh equity of MS to Tata Steel

18 18 Transaction Cash Distribution No of shares to be acquired = 4716 mn to 8422 mn (56%) (100%) Total Cash : THB 5423 to 9685 mn (USD 131 to 233 mn) Cash into MS No of shares = 2105 THB/share Cash = THB 2420 mn (USD 58 mn) Cash to CHC No of shares = THB / share Cash = THB 3003 mn (USD 72 mn) Others No of shares = 0 to THB / share Cash = THB 0 to 4262 mn (USD 0 to 103 mn) 2.Purchase of 31% Equity of CHC on expanded equity base of MS 1.Preferential Allotment of 24.99% Equity 3.Purchase of balance 44% Equity of from the market Total Cash outgo for 56% stake in expanded capital of MS, before open offer will be approximately US$ 130 million

19 19  Tata Steel Strategy  Thai Economy  Brief profile of Millennium Steel  Transaction structure and values  Areas of value unlock and integration  Timelines Agenda

20 20 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

21 21  Tata Steel Strategy  Thai Economy  Brief profile of Millennium Steel  Transaction structure and values  Areas of value unlock and integration  Timelines Agenda

22 22 Transaction Steps : Expected to get completed by 2 nd quarter of 2006  To achieve Tata Steel’s objectives, the transaction is envisaged to be sequenced as depicted here Tata Steel signs an agreement with CHC pursuant to which CHC will tender their shares to Tata Steel in the voluntary tender offer; CHC will also be obliged to vote in favour of changing the articles of MS to facilitate this transaction Tata Steel will make an offer to the board of MS to make a voluntary tender offer to MS shareholders subject to: (a) Being issued 24.99% new shares (b) Articles of the company being changed (c) Other approvals which may be required being obtained 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 ; Similarly, resolutions for changing articles of the subsidiaries to be moved; Application or change of BoI approvals to be made 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 Step-1 Step-2Step-3Step-4

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