The Centre on Wednesday approved the demerger of the Chhattisgarh-based Nagarnar Steel Plant (NSP) from state-owned iron ore producer National Minerals Development Corporation and strategic disinvestment of the demerged entity by offloading the entire government shareholding to a buyer.

The approval was given by the Cabinet Committee on Economic Affairs that met here under the chairmanship of Prime Minister Narendra Modi.

With the approval, the CCEA has amended its decision taken on October 27, 2016, to disinvest the plant as a unit of the NMDC.

The Board of Directors of the NMDC in August had already accorded in-principle proposal to demerge the NSP with itself.

The NSP is a 3 million ton per annum (mta) Integrated Steel Plant being set up by the NMDC at Nagarnar in Chhattisgarh's Bastar district in an area of 1,980 acres at revised estimated cost of Rs 23,140 crore. As on date, the NMDC has invested Rs 17,186 crore on the project out of which Rs 16,662 crore is from its own funds and Rs 524 crore has been raised from bond market.

But the project has faced several delays and in the current economic situation, the NMDC was also finding difficult to fully finance the project. The company had been raising non-convertible debentures for completing the steel project.

With the approval of demerger and subsequent strategic sale, all incremental capital expenditure for the steel plant can be self-funded by the new buyer that will also value the investment put in by the NMDC. With the steel market looking up again after facing a severe demand erosion in the first quarter of FY21, the government hopes that its share in the demerged entity would get good valuation.

The demerger will also allow the NMDC to focus on its core activities of mining.

After the process is completed, the NSP shall be a separate company and the managements of the NMDC and the NSP shall be accountable for their respective operations and financial performance. Shareholders of the NMDC will also be shareholders  of the demerged company in the proportion of their shareholding.

After the demerger, investors will have better visibility of the operations and cash flow of the NMDC and the NSP separately. The demerger will also be tax neutral from the point of view of capital gains.

The CCEA has taken note that the process of demerger and disinvestment will be initiated in parallel and disinvestment of demerged company is expected to be completed by September 2021.

The NMDC is a listed CPSE under the Ministry of Steel and the government has 69.65 per cent shareholding in it.