India's Tata Chemicals investing US$290M to acquire 25.1% stake in stream 1 of greenfield, port-based, ammonia-urea fertilizer complex in Gabon

MUMBAI, India , April 13, 2011 (press release) – Tata Chemicals (TCL), today, announced an investment of $290 million to acquire a 25.1-per-cent stake as a strategic investor in the stream 1 of a greenfield, port-based, ammonia-urea fertiliser manufacturing complex in the Republic of Gabon. The balance of shareholding is held between Olam International (Olam) at 62.9 per cent and Republic of Gabon (RoG) at 12 per cent.

This is a successful culmination of the accord entered into, between Olam and RoG to set up a 1.3mtpa urea plant based on gas supply at competitive fixed price for 25 years, wherein the partners having equity in the ratio of 80:20 had the option of bringing in a strategic investor who could have a 25.1-per-cent share in the company through sell-down by Olam and RoG.

This ammonia / urea venture in Gabon will ultimately result in setting up of two streams, each of 1.3mtpa of urea with matching ammonia capacity for which feedstock agreement at competitive fixed prices has already been entered into with the RoG.

Execution work on stream 1 of 1.3mtpa of urea has already commenced and it is expected to be commissioned in three years time. The operational capacity would be 1.3 million metric tons of urea per annum (2,200 metric tons of ammonia and 3,850 metric tons of urea per day). Time schedule for executing stream 2 would be mutually decided by Olam, RoG and TCL over the next 24 months. TCL is expected to hold a significantly higher stake in stream 2.

Combined, the project is envisaged to have a capacity of 2.6 million metric tons per annum.

TCL with its existing expertise to run efficient fertiliser plants would provide the project management consultancy, and operations and maintenance service post the project commissioning. The government of Gabon has given a 10-year tax holiday after commencement of commercial production and a 10-per-cent concessional tax rate thereafter.

Olam, RoG and TCL would also set up a sales and marketing JV for selling the entire output of the project in which TCL and Olam would hold equal stake. Up to 25 per cent of the output would be reserved for Indian markets for sales through the TCL network, subject to de-canalisation in India.

R Mukundan, managing director, TCL, said, “TCL is delighted to partner with Republic of Gabon and Olam to deliver value to all stakeholders. TCL has a significant presence in Kenya, South Africa and Morocco and this project is also in line with our focus to partner in the growth and development of Africa."

He further added, “This investment brings us the strategic advantage of sufficient gas tied up at a competitive fixed price for both the streams. The feedstock is assured in terms of quality and quantity under a 25-year, competitive, fixed-price, natural gas contract with Republic of Gabon. This plant is envisaged to be one of the lowest-cost urea manufacturing facilities globally. Strategically located near Gabon’s main seaport, it also enables efficient and cost-effective material handling and proximity to target markets i.e., Africa, North America, Latin America and India. Up to 25 per cent of the production would be reserved for sales in India through the existing TCL network, subject to de-canalisation in India. This is a value accretive project with expected yearly Ebitda of $300 million to $350 million per stream. We believe this project will fill the gap of growing agri-inputs need in Africa, Latin America and Asia.”

PK Ghose, executive director and chief financial officer, TCL, said, “This move is in line with our strategy to grow our presence in the agri space. We intend to fund this investment of $290 million for the 25.1-per-cent equity by using the $82 million raised by the preferential share allotment to Tata Sons, sale of investments worth $68 million over the next three years and the balance about 50 per cent through debt funding. Apart from providing good business environment, the Republic of Gabon has also given us a 10-year tax holiday after commencement of commercial production and 10-per-cent concessional tax rate thereafter.”

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