NMDC trades ex-date for demerger; stock surges 14% on heavy volumes

Shares of NMDC surged 14 per cent to Rs 107.25 in Thursday’s intra-day trade, on the back of heavy volumes. The stock turned ex-date for its steel business.

At 10:36 AM; NMDC traded 13.5 per cent higher at Rs 106.35 per share, from its opening level of Rs 93.70 (adjusted) apiece on the BSE, data shows. The average trading volumes on the counter jumped nearly 10-fold as around 21.89 million shares exchanged hands on the NSE and BSE.

NMDC fixed Friday, October 28, 2022 as record date to identify shareholders of NMDC (demerged company) to whom the shares of NMDC Steel (resulting company) would be issued and allotted pursuant to the scheme of arrangement.

NMDC shareholders will be eligible to get one share of NMDC Steel for every equity share held. The steel business will be listed separately on the bourses.

On July 13, 2021, the board of directors of NMDC approved scheme of arrangement between the company, NMDC Steel, and their respective creditors and shareholders, which entailed inter-alia demerger of Nagarnar Iron & Steel Plant (NISP). Under the Scheme, the NISP plant at Nagarnar, Chhattisgarh would be demerged from NMDC to NMDC Steel (NSL), which is currently a wholly owned subsidiary of NMDC.

Earlier this month, the Ministry of Corporate Affairs (MCA) also approved demerger of NMDC Steel, a three-million tone steel plant in Chhattisgarh from NMDC.

NMDC is engaged in mining of iron ore, which is crucial for the steel industry. NMDC produces around 42 million tonnes per annum of iron ore from three mechanized mining complexes, two in Chhattisgarh and one in Karnataka, which supplies ore in the form of lumps and fines for production to various steel industries using blast furnace / DRI route.

Analysts at ICRA believe that NMDC’s liquidity position remains superior, supported by its healthy cash generation from the mining business.

“We expect the company’s liquidity profile to remain very comfortable given the consistent track record of strong cash flow from operations from the mining business, availability of large unencumbered cash balances of Rs 6,850 crore as on March 31, 2022, and adequate buffer in the form of unutilised credit lines. However, NMDC’s instruments rating continues to remain under ‘watch with negative’ implications,” the ratings agency said.

The rating ‘watch with negative’ implications on NMDC reflects uncertainty over debt servicing arrangement to be made by NISP in the initial period post its demerger. The demerger has been approved by the NMDC’s board on August 27, 2020, and is at an advanced stage of implementation, subject to receipt of requisite regulatory approvals.

While the debt servicing would be done by NMDC till the demerger, the obligation for the rated debt would shift to the new entity once the demerger is complete. This, in turn, would exert rating pressure on the rated debentures as the credit profile of NISP is likely to be much weaker than NMDC as it does not have any track record in the steel industry, said analysts.

“We also believe that NISP would take some time in ramping up and stabilising its steel business and could therefore witness cash flow mismatches in the initial period post commissioning. Consequently, there will be a multi-notch downgrade of the rated debentures post the demerger,” the ratings agency added. CLICK HERE FOR FULL REPORT