A consortium led by the Mesco group, which had signed an agreement to take over Transglobal Steel of the US, may not be able to honour the deal due to scarcity of funds.

Mesco had signed a deal with Samsung of South Korea and Tippins of the US in October 1995 for the takeover of the US integrated steel plant. It was decided that Mesco would contribute $30 million and its partners $10 million each while Bet Dech of the US would provide $10 million by way of land. The rest of the equity would be offered to EPC contractors and utility companies.

Mesco had planned to pump in $15 million through its group company, Mideast Integrated Steels Ltd (MISL), and the remaining $15 million was to be obtained from friends and associates abroad. But given the current financial position, it will not be possible for Mesco to contribute $30 million for the takeover.

However, group chairman J K Singh said that Mesco has not dropped the takeover plan. "We have kept it on hold," he said.

Transglobal Steel Mill, set up early this century on the Ohio river near Pittsburg, was closed down in 1992 after it became sick. The Mesco group led consortium wanted to take over the plant in order to revive it and create facilities for manufacturing 1.2 million tonnes of hot rolled coil per annum, including two lakh tonnes of stainless steel.

The steel plant, which has captive capacities to produce oxygen and power and port facilities within its premises, would have been a strategic acquisition for Mesco which is now setting up a pig iron plant at Dubri in Orissa. But, according to industry watchers, Mesco will not be able to participate in the takeover.

The fund-starved group, which is selling off its assets and units to finance the completion of the pig iron project, will not be able to invest in Transglobal in the next five years.

Mesco has decided to sell off its leather garment and leather goods divisions and tanneries, two of its three buildings in Delhi and two ships, both of which are being built. It has also decided to stop all expansions and shelved the Mesco Kalinga Steel Project in Orissa.

According to the group chairman, ANZ Grindlays has advised Mesco to concentrate on its steel, mining and pharmaceuticals divisions which have been identified as areas of core competence. He said negotiations for selling off the leather units and tanneries have already begun. The restructuring exercise will yield Rs 50 crore immediately and help the company save around Rs 20 crore per annum.

Singh said the group is now concentrating on MISL's pig iron project which is facing severe time and cost overruns. The plant's capacity has been increased to seven lakh tonnes from 6.1 lakh tonnes and the cost of the project has been revised to Rs 564 crore from Rs 457 crore.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.