Hit by Covid-19, JSW Steel seeks time to pay for Bhushan Power purchase

As steel prices crash, firm facing winner's curse with Rs 19,700-cr acquisition

JSW Steel has sought more time to make payment to banks for Bhushan Power acquisition, following the announcement of a moratorium by the Reserve Bank of India (RBI) and a steep fall in global steel prices due to the Covid-19 pandemic, say bankers.

JSW Steel, which made the winning bid to acquire Bhushan Power & Steel (BPSL), says it remains committed to the acquisition.

JSW offered Rs 19,700 crore to banks for BPSL, which was largely funded by taking fresh debts. After a long litigation, the National Company Law Appellate Tribunal gave its green signal in February and lenders were expecting a debt resolution in the March quarter.

But as the pandemic hit the Indian economy in March, the company decided to take advantage of the RBI’s moratorium on loans and defer repayments.

At the same time, a fresh petition was filed by former Bhushan Steel promoter Neeraj Singal appealing against JSW’s acquisition. It is currently pending in the Supreme Court.  The litigation could delay the acquisition till the apex court makes a decision, say corporate lawyers.

“The 10 per cent fall in global steel prices since January has further compounded the problem, making the acquisition a winner’s curse,” says a banker.

Bhushan Power was one of the top 12 companies sent for debt restructuring by Indian banks, following a report prepared by the RBI on top defaulters. BPSL had defaulted on bank debt worth Rs 48,000 crore.

Bankers say the company plans to invest Rs 34,344 crore till 2022 in capital expenditure (capex). After spending Rs 11,000 crore, the pending capex of Rs 23,344 crore, along with cash outgo towards bid security and others, including stamp duty payments for mines bagged in Odisha, is expected to remain on track.

But the company may take a relook at its overseas operations, including its US-based plate and pipe mill, which reported operating losses in 2019-20 due to excess supply and depressed steel prices.

Similarly, its steel assets in the US and Italy — acquired last year — are yet to achieve positive operating profits due to gradual ramp-up of its capacity. Dependence of these overseas entities on the parent company to partly meet its debt servicing requirements affects the consolidated financial position of JSW Steel and the company looks at selling a part of these assets, say bankers.

JSW Steel stock closed at Rs 171 a share on Wednesday. The shares are down 36 per cent year-to-date.