MUMBAI, November 4: The Japanese conglomerate Marubeni Corporation is in talks with India's two leading steel firms -- Essar Steel and Ispat Industries -- to either pick up a stake in the existing companies or set up a new joint venture.

Sources say due to funds constraints, both companies have approached Marubeni for a long-term relationship.

In Essar Steel, Marubeni is interested in taking over 40 per cent stake in the pellet plant, situated in Vizag. The plant, according to company officials, would be hived off as a separate company.

Similarly, sources say, Marubeni has approached the Mittals of the Ispat group to pick up a stake in their flagship -- Ispat Industries, which operates a steel plant in Dolvi in Maharashtra. The possibility of a joint venture with Ispat is also being worked out, sources say.

The reasons for Marubeni's interest in the Indian steel industry is obvious. The company was one of the forerunners in race for Tisco's Gopalpur project as a strategic partner. After detailed feasibility study, Tisco, decided to go alone with its Gopalpur steel project. This led to Marubeni looking for alternate partners for its India venture. "We are talking to Marubeni, but the details are yet to be worked out," said an Essar official.

Essar sources say the proposal to divest its 40 per cent stake in the pellet division would ease the company's cash flow sizably. Both Essar and Ispat were going through a rough phase in the last few months. Due to the recent rise in the international steel prices, they are expected to perform better in the fiscal 1998. Production costs in India are far lower than its immediate competitors, hence, Marubeni is keen to set up a base in India, sources say.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.