JSW Steel explores options to fund acquisition of Bhushan Power, Essar

Sajjan Jindal-led JSW Steel is exploring various financing models, including a 'joint control mechanism', to fund the acquisition of the stressed assets of Bhushan Power and Steel Ltd and Essar Steel, a source said.

This assumes significance as JSW Steel's Rs 197 billion offer for debt-laden Bhushan Power and Steel (BPSL) has been backed by around 90 per cent of lenders.

"JSW Steel is exploring differentiated financing options, including joint control model, to fund its acquisition of stressed assets of Bhushan Power and Steel and Essar Steel," according to a banking source.

Under the joint control model, a special purpose vehicle (SPV) will be set up and the acquired stressed assets will rest with the SPV.

Joint control model will insulate debt impact of yet to be acquired stressed assets of these two firms on JSW Steel financials, the source said.

If acquired, JSW Steel is exploring to merge the stressed assets of the both companies into its books post turnaround of the stressed assets, the source said.

When contacted, JSW Steel spokesperson declined to comment.

Bhushan Steel and Power Ltd is among the 12 non-performing accounts referred by the RBI for NCLT proceedings and owes about Rs 45,000 crore to its lenders.

According to reports, JSW Steel had submitted a resolution plan of Rs 197 billion to the Committee of Creditors of Bhushan Steel and Power.

JSW Steel had teamed up with NuMetal Mauritius to place a Rs 370 billion offer for Essar Steel in the second round of bidding.

It had earlier said it was seeking a legal opinion if it can bid solo for stressed assets of Essar Steel if fresh bids were allowed.

JSW Steel has also implemented joint control model to bid for acquiring Monnet Ispat and Energy.

Jsw Steel grew from 1.6 million tonnes per annum (MTPA) in 2002 to 18 MTPA in 2018 both organically and inorganically. Despite the company's eleven times growth in capacity, the JSW Steel's financials improved substantially, according to sources.

Market capitalisation of JSW Steel surged 300 times from Rs 2.58 million in FY2002 to Rs 23,117 crore in FY2010 to Rs 875.03 billion currently.

Over last couple of years JSW Steel debt to Ebitda ratio has improved significantly. 'It was 3.14 times in FY'17, then it improved to 2.57 times in FY'18 and in first quarter of FY'19 it improved to 2.26 times.

The capacities have gone up but if you see the debt to Ebitda ratio they have gone down. That means financial health of the company has improved despite capacity expansions.

"The company has been guiding in the market that it will put in place innovative and differentiated financing models in case it acquires the stressed assets of Bhushan Power and Steel and Essar Steel. These innovative financing models which is primarily joint control model are aimed at ensuring that its financials issues are well within the limits as communicated by the JSW Steel from time to time," another source said.

For bidding and acquisition of Monnet Ispat and Energy Ltd, JSW Steel implemented the joint control model with Aion Capital.

JSW Steel had put in only Rs 3.75 billion in the form of equity or Quasi-equity instruments for acquiring the assets of Monnet Ispat.

"The debt in Monnet Ispat was arranged without recourse to the company. When you say without recourse to the company it means that the debt will not impact the company's financials. It will be serviced from the cash flows of the company of the acquired asset," the source said.

When JSW Steel acquired Ispat Industries in 2010 the company used the similar financing plan. The acquisition of the company was grounded on differentiated financing plans.

Post the turnaround of the acquired asset, JSW announced the merger of the Ispat Industries in JSW Steel.