JSW Steel has proposed to raise at least Rs 5,700 crore from Japan’s second largest steel maker, JFE Holdings, to give the latter a 14.99 per cent stake in India’s third largest steel maker.
The transaction will be completed in three tranches at a minimum share price of Rs 1,331 a share or a maximum of Rs 1,500 a share, depending on the stock’s performance. It was down by 0.8 per cent to Rs 1,160 on Tuesday on the Bombay Stock Exchange.
In the first tranche, Rs 4,800 crore will be raised through issuance of shares or fully convertible debentures to JFE. In the second tranche, Rs 600 crore will be issued through global depository receipts and in the third tranche, Rs 300 crore will be raised through conversion of foreign currency convertible bonds. The allotment should be completed by September.
“We will have a headstart over other steel companies in India,” said Sajjan Jindal, vice chairman and managing director, JSW Steel. The promoters’ holding in the company will come down to 40 per cent from the current 44.9 per cent once the transaction is complete. “We will use the fund for de-leveraging of the balance sheet,” he said.
Auto market access
The acquisition of stake by JFE will give it access to India’s automobile market, that grew about 30 per cent in the first half of this year. It will also help JSW use JFE’s technology to make high-grade steel for the automobile industry. JFE is already a supplier of highgrade auto steel to Japanese and Korean auto makers, including Suzuki and Hyundai.
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India’s largest manufacturer, Tata Steel, is also teaming with Japan’s Nippon Steel to produce and sell value-added auto steel in India. They will form a venture to be located at Tata Steel’s Jamshedpur factory complex and will start operations in March 2013.
JSW Steel also recorded Rs 295 crore of net profit for the financial year’s first quarter ending June 30, a 26 per cent rise from the corresponding period of the previous year. Net sales for the company rose by 20 per cent to Rs 4,818 crore.
The company has a new factory coming up each in West Bengal and Jharkhand. It plans to complete the first phase of the 10-million tonne West Bengal project, at Salboni, by March 2014. It will start the construction there by the end of the current financial year and a 3-mt plant should be completed under the first phase, in three years. Its 10-mt project in Jharkhand will take longer, as the environment clearances are still awaited and it may take another three years to get it. JSW Steel now plans to discuss equity infusion by JFE in these projects.
Bengal project pushed back
Meanwhile, the company has pushed back the timeline for its Bengal project, yet again.
“Construction of the plant will start before the end of the fiscal,” said Jindal. Earlier this year, Jindal had said that construction would start by August, after a meeting with West Bengal Chief Minister Buddhadeb Bhattacharjee in Kolkata.
Moreover, the plans for the first phase have also been reworked. The first phase would now have three million tonnes steelmaking capacity and 300 Mw of power, as opposed to 800 Mw of power.
The changes were made to fit the environment clearance. JSW Bengal Steel has environment clearance for three million tonnes of steel capacity and 300 Mw of power, as per the development agreement signed in 2007.
Ironically, JSW’s 10 million tonne greenfield project happens to be one of the few projects in the country of its size to have bagged the requisite mines—coking and non-coking coal, land and a special economic zone status.
The foundation stone for the project was laid in November 2008, but the company had to go slow as the global financial crisis broke out soon after.
The Rs 35,000-crore steel and power project, is yet to achieve financial closure, but Jindal said, “That would not be an issue.” At present, construction of a 30-acre township and 35-km boundary wall along the site was underway.