Steel maker Transdanube Industries, currently in talks to takeover Mechel's former factories in Romania, still plans to pursue its initial steel plant investment in Oltenita but has put the project on hold to pursue the new opportunity. Should the company be successful in buying the factories, now owned by NIkarom,  it will probably need industrial policy support on a challenging market.

“The Oltenita factory is still very much happening, in 2010 we were looking to get the construction permits, which was a painful, yet successful process, it took two years. Our project is still planned,” Tomasso Serrano, the CEO of Transdanube Industries told Romania-Insider.com.

“The permitting process was complicated also because it is a big plant, built on an existing site, the previous Turol foundry was demolished,” he added.

The EUR 200 million Oltenita steel plant, which has already seen an investment of EUR 35 million, would produce half a million tonnes of rebar a year.

Should Transdanube Industries, a subsidiary of African Investments, be successful in acquiring all five of Mechel’s former factories, which are now controlled by Invest Nikarom, it will be a matter of sizing the market.

“Now that the permits are ready, we have been talking to the EBRD for financing, we have done a full feasibility study, we are ready to go. But last year we heard about Mechel exiting, we started talking to them, so we delayed a bit the Oltenitei project,” said Serrano.

“The project has not been scrapped, but we would like to phase it properly, as we believe it is a pity for plants like Targoviste and Buzau to close down. We have worked very hard in this sense, we have done our feasibility studies as well, we have done the studies for all five plants,” he added.

The discussions with Mechel over the five steel plants in Romania started a year ago. In the meantime, Mechel chose to sell the factories for a symbolic amount, USD 70, to a firm called Invest Nikarom, in order to stop bleeding money.

“First we talked to banks, then to Mechel, then to the new owners Nikarom,” Serrano explained.

Despite the Russians' rushed exit, Serrano said Transdanube Industries was still confident in the local market, but would be seeking for some help from the authorities.

“We believe in Romania and we feel this is an opportunity. It is challenging, and we will need help, but we do believe in it,” said the CEO. “We will need industrial policy support but I feel during these months there has been some attention to the industry from the Government," he added.

“If we are successful in this operation, hopefully they will also listen to us. We will engage the Government for some discussions, we look for a comment platform to mitigate the social impact and ensure profitability, which is always the problem.“

Meanwhile, the company is looking to develop another business line, closely attached to the future steel plant in Oltenita: the industrial logistics business on the adjoining site of the Navol shipyard.

The site includes some 16 hectares of industrial land stretching along one kilometre of Danube, with two operating docks, and a launching platform of 300 meters. Acquired last year for some EUR 9.9 million, the site has many unused buildings some of which will be demolished, and most of which will be part of the new business.

“We wanted a Danube port for our steel plant but we are also developing this side of the business. We are running a scrap metal business, as well as an agri-business, and using the docks for some other big companies,” said Serrano, adding that the company is also looking for investors who want to start activities there, as they can supply industrial services.

Transdanube Industries is owned by African Industries, an international group founded in the 1970s by Indian entrepreneur P.K. Gupta. He is currently the Chairman of all the Gupta family’s ventures in Nigeria, while his sons, Raj and Alok maintain control over the family businesses.

The group's main operations are located in West Africa (Nigeria), with offices in Dubai (UAE), Shanghai (China), London (UK), Ludhiana, Mumbai, Delhi (India) and Accra (Ghana).

Employing around 3,000 people, the group's main products are steel, sodium silicate, glass, aluminium sulphate, sulphuric acid, high alumina refractory bricks.

Mechel, which had entered the Romanian market by buying the Targoviste steel plant in 2002, made an exit by selling all five factories, Ductil Steel S.A., Campia Turzii S.A., Mechel Targoviste S.A., and Laminorul S.A, as well as Mechel East Europe Metallurgical Division SRL.

"With a significant loss for the Romanian companies in 2013 estimated at 2.4 billion Russian roubles (around USD 80 million), the current transaction will have a positive financial impact on our shareholders. The freed cashflow will be re-directed to the operational activity and to reducing the company's debt,” said Evgeny Mikhel, general manager of Mechel, when commenting the sale.

The sellers cited the unfavorable prices on European markets, with the growing price of scrap metal and the low demand for final products among reasons for the sale.

Corina Chirileasa, corina@romania-insider.com