Acquisition of Millennium Steel, Thailand

1
Acquisition of Millennium Steel, Thailand
December 22, 2005
Mumbai
2
Agenda

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

3
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

4
Agenda

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

5
Thai Economy
Nominal GDP US 161.5 bn
Source UBS

• GDP expected to grow _at_ 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 Moodys) and BBB (by Standard Poors)

6
Thailand Market
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

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
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
Mass Transit Infrastructure Government
Projects 2005 - 2009
Source Ministry of Finance, Thailand
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Agenda

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

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
99.52
99.95
99.99
NTS Steel Group
The Siam Iron and Steel (2001) Co.
The Siam Construction Steel Co.
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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

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
13
Consolidated Financial Performance
14
Agenda

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

15
Transaction Rationale

• The investment in Millennium Steel is a
  significant progression in Tata Steel's
  globalisation initiatives and, together with the
  earlier acquisition of NatSteels steel business,
  will significantly enhance its market position in
  South East Asia
• The acquisition will have a strong fit with Tata
  Steels 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

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.

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Evolution of Holding Structure
Stage 1
Preferential allotment of 24.99 of fresh equity
of MS to Tata Steel
Current
Stage 2 - Final
CHC
Others
Tata Steel
Others
Tata Steel
Others
CHC
24.99
31
44.01
44 to 0
56 to 100
41
59
MS
MS
MS
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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)
2.Purchase of 31 Equity of CHC on expanded
equity base of MS
3.Purchase of balance 44 Equity of from the
market
1.Preferential Allotment of 24.99 Equity
Cash into MS No of shares 2105 mn _at_1.15
THB/share Cash THB 2420 mn (USD 58 mn)
Cash to CHC No of shares 2611 mn _at_ 1.15
THB / share Cash THB 3003 mn (USD 72
mn)
Others No of shares 0 to 3706 mn _at_ 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
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Agenda

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

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

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Agenda

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

22
Transaction Steps Expected to get completed by
2nd quarter of 2006

• To achieve Tata Steels objectives, the
  transaction is envisaged to be sequenced as
  depicted here

Step-1
Step-2
Step-3
Step-4
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
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Thank You