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The Centre has approved Tata Steel Long Products' bid to buy steel producer Neelachal Ispat Nigam, an official statement said on Monday.

The Centre's 'Alternative Mechanism' approved the bid for buying 93.71 per cent of shares of JV partners of four CPSEs and two Odisha state government PSEs at the bid enterprise value of Rs 12,100 crore.

The Centre does not hold any equity in the company.

"However, on the request of the Boards of selling shareholder PSEs and on concurrence by the Govt of Odisha, the CCEA 'in principle' approved strategic disinvestment of NINL on January 8, 2020, and authorised Department of Disinvestment & Public Asset Management (DIPAM) to undertake the transaction," the statement said.

At present, NINL has an integrated steel plant with a capacity of 1.1 MT, at Odisha's Kalinganagar. The company has been running in huge losses and the plant has been closed since March 30, 2020. Besides, it has debt and liabilities exceeding Rs 6,600 crore as on March 31, 2021, including overdues of promoters, banks, other creditors and employees.

The company has negative networth of Rs 3,487 crore and accumulated losses of Rs 4,228 crore as of March 31, 2021.

"Tata Steel Long Products Ltd (TSLP) emerged as 'H-1' bidder, whose bid has been accepted by the AM. Letter of Intent (LoI) is being issued to TSLP inviting them to sign the SPA. At this stage, 10 per cent of the bid amount shall be paid by the successful bidder into the Escrow account.

"This is the first instance of privatisation of a public sector steel manufacturing enterprise in India. The success of the transaction is a win-win situation for all."

As per the Finance Ministry, the biggest advantage of this privatisation will be to the local economy of the region as the strategic buyer will be able to revive a closed plant, bring in modern technology, best managerial practices and make infusion of fresh capital, which will help in augmenting the capacity of the plant.

"Govt. of Odisha has given active support to the process of privatisation. The privatisation will help in creating new jobs in the region by creation of ancillary industries and supplier's network.

"Keeping in view the best interest of the serving employees, it was decided to keep the employees' dues as the top most ranking liability in the 'Waterfall Agreement' to be satisfied first before any other liability."

Furthermore, the ministry cited that the transaction is on "going concern" basis and the employees of NINL will continue to be the employees of the company in terms of the 'Share Purchase Agreement' (SPA), which binds the buyer to have a lock-in period of one year.

"The strategic buyer will also be bound to follow the terms of VRS applicable to CPSEs whenever such a decision is taken.

"Post-sale consideration will go towards settling of the liabilities of the company, in the order provided in 'Waterfall Agreement'."