India's Tata Steel sells Riversdale stake to Rio Tinto

Thu Jun 16, 2011 1:58pm GMT

* To sell shares in ongoing open offer
* Tata will retain 35 pct stake in Mozambique coal assets
* May use funds for expansion, debt repayment
(Adds details, quote, background)

By Prashant Mehra

MUMBAI, June 16 (Reuters) - India's Tata Steel on Thursday agreed to sell its 26 percent stake in Australia's Riversdale to Rio Tinto for $1.1 billion, giving the Anglo-Australian giant full control of the coal miner.

Tata, the world's No 7 steelmaker, will sell shares in an open offer at A$16.5 each. Riversdale shares closed little changed at A$16.50 in Sydney on Thursday before Tata Steel's announcement.

Tata will keep its 35 percent stake in a Riversdale unit that owns coal assets in Mozambique and will discuss ways to enhance participation in the Benga joint venture, the company said in a statement.

Tata Steel said its Riversdale investment has generated a return of about 100 percent over four years.

"The company probably feels cash will be more valuable at this time than holding on to the stake," said a metals analyst at a Mumbai brokerage who declined to be named.

Tata had repeatedly said it would hold on to the Riversdale stake as coal supplies were crucial for its European steel making operations, which account for almost two-thirds of its 28 million tonnes global capacity.

Rio won majority control of Riversdale earlier this year with a $3.9 billion bid for the Africa-focused miner.

In April, Rio raised its holding to 73 percent after striking a deal with Brazilian steelmaker CSN for its 19.9 percent stake in Riversdale and said it planned to delist the company.

Tata Steel, which does not have long-term coal supplies locked-in to fuel its European steel plants, last month warned rising raw material costs could hurt margins for a couple of quarters.

The Indian company may use funds from the sale to repay some of its $13 billion debt, the analyst said. It is also expanding capacity by 3 million tonnes at its India plants.

In January, Tata Steel raised $770 million in a share sale to help fund its expansion plans.

Ahead of the news, Tata Steel shares fell 1.5 percent to 553.25 rupees in a weak Mumbai market
(US$1= 0.936 Australian dollars) (Editing by Tony Munroe, By Reuters)