Mumbai: Accessing low-cost natural soda ash reserves in the North American market, Tata Chemicals Ltd, in a deal on Thursday, agreed to purchase the U.S. Soda-Ash producer General Chemical Industrial Products Inc.

Homi Khusrokhan, Tata Chemicals Managing Director told that General Chemical operates a 2.5-million-tonnes a year soda ash capacity in Wyoming, a region that holds the world's largest reserve of raw ore. It holds nearly 100 years worth of extractable deposits in the area.
 
According to the deal, the Indian chemicals maker it will pay $1.005 billion to private equity firm Harbinger Capital Partners for its largest acquisition to date, The U.S. firm that pocketed the revenue of $400 million in 2007 and has no debt obligations.

Khusrokhan said, "This acquisition gives us ownership of another low-cost soda ash asset. This one is timely, as we picked up a US asset when the rupee is strong.”

Now, the company’s total soda ash capacity will surge up to 5.5 million tonnes a year, from 3 million tones. According to analysts, this will make the company the second largest producer in the world. Brussels-based Solvay, the biggest, has an 8 million-tonne capacity.

Earlier in December 2005, Tata Chemicals purchased U.K's Brunner Mond Group for 8.6 billion rupees ($220 million), which enhanced its soda ash capacities in Europe and Africa.

Khusrokhan said, "It is important to have low-cost advantage. If and when there is downturn in the industry, we will have protection through our cost advantage.”

"There is huge demand for soda ash in construction, auto, and detergents as developing economies grow," he said.

Tata Chemicals however told that funding details had not yet been worked out but these would be a mix of debt and equity, and a lot of options were available.

In the wake of the news, Tata Chemicals shares touched a high of 347 rupees, but markets finally gave a thumbs down to the deal on valuation concerns, with its shares ending 7.3 percent lower at 305 rupees, in a weak Mumbai market.

But, according to analysts, at the current valuation, Tata Chemicals paid around 16,000 rupees per tonne of soda ash capacity, comparable to similar deals by Indian companies recently.

Ashwani Agarwalla, analyst at Mumbai-based PINC Research, said, "Three years back, they paid about 5,000 rupees a tonne for the Brunner Mond capacity. At the current price, it looks like the US company's realisations are on the lower side.”

Rohan Gupta, analyst at Emkay Shares & Stock Brokers, said, "They are most likely to raise debt, as debt-equity ratio is in control right now. They also hold equity investments of nearly 15 billion rupees, which they could liquidate.”