Tata Steel Ltd., set to become the world's fifth-biggest producer after buying U.K.'s Corus Group Plc, said its unit agreed to buy two mills in Vietnam to tap rising demand from construction companies.
Natsteel Asia Pte will pay $41 million for the steel-bar rolling plants including assumed debt and expects to complete the purchase by June 2007, the company said today.
India's Tata Steel joins producers such as Arcelor Mittal and Posco in seeking to build plants in Asia, where demand for buildings and cars is growing. Vietnam's $53 billion economy is moving away from farming roots, and industry and construction now make up 41 percent of gross domestic product and services.
``Southeast Asia is one of the fastest-growing markets for steel in the world and it makes sense to have a bigger share of the market there,'' said Hitesh Agrawal, an analyst at Mumbai- based Angel Broking Ltd. ``It will continue to be a lucrative market for the foreseeable future.''
NatSteel is acquiring two of the biggest units of Vietnam Industrial Investments Ltd. (VII), SSE Steel Ltd. and Vinausteel Ltd., which have a combined capacity of 430,000 tons a year, according to the statement. Vietnam Industrial is listed in Australia and controls five steel plants in the Southeast Asian country.
Operations at SSE and Vinausteel have been affected by the volatility in prices of billets, a raw material, said Alan Young, chief operating officer of Vietnam Industrial. Tata will ship to NatSteel low-costs billets next year, Mukherjee said on Feb. 15.
``Tata can produce billets and once they can produce enough to supply their other operations they'll be able to send billets here,'' Young said today in a phone interview. ``It makes sense for them to have an outlet to utilize that.''
Vietnam Industrial's shareholders will get $10.8 million, including $2.7 million to be held in escrow pending recovery of past dues and finalization of tax issues, the company said in a statement to the Australian Stock Exchange.
Economies in East Asia including China, Malaysia and South Korea, will grow 7.3 percent next year, three times faster than the 30 nations of the Organization for Economic Cooperation and Development, according to the World Bank. The forecast excludes Japan and the Indian subcontinent.
``This acquisition is part of the company's strategy to establish itself as a strong player in the construction sector that is growing rapidly in Asia,'' Tata Deputy Managing Director T.K. Mukherjee said today by phone from Jamshedpur, India.
Shares (TATA) of Tata Steel rose 3.5 percent to 427.4 rupees at the 3:30 p.m. close in Mumbai after four days of losses.
Posco in November said it will spend $1.13 billion to build two mills in Vung Tau city by 2012 to make hot-rolled and cold- rolled coils. Posco will buy the hot-rolled coil needed for the first plant from Korea or import it from other countries until its plant in the India's Orissa state is completed.
NatSteel, Tata Steel's first purchase outside South Asia, gave Tata Steel plants in Thailand, Malaysia, the Philippines, Australia, Vietnam and China. In December 2005, Tata agreed to buy Thailand's Millennium Steel Pcl from Siam Cement Pcl.
The Corus transaction will form a company with revenue of $24.4 billion. Mittal Steel Co. acquired Arcelor SA last year for $38.3 billion in the industry's biggest-ever takeover.
``Steel industry worldwide is consolidating and anyone who wants to grow substantially has to look at an inorganic way of growing,'' said Agrawal. ``That's what Tata is doing.''