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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