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B K Goenka's Welspun group is set to sell off its Maharashtra-based steelmaking unit to Sajjan Jindal's JSW Steel at a loss of equity worth Rs 300 crore. JSW will take over the Rs 1,100 crore of debt of the company and free all the guarantees given by the Welspun group to banks.
Welspun had acquired the company, Vikram Ispat, from the Aditya Birla Group in 2009 for Rs 1,050 crore and renamed it Welspun Maxsteel. It later expanded the capacity of the plant but could not turn it around due to lack of gas supply from ONGC's gas blocks in Bombay High. Cheap gas was promised to companies during the 1980s to promote industrial units in western India.
Bankers said Welspun was exiting the company for three reasons: it would be able to focus on its core business, the loan guarantees given by Welspun Enterprises would be released and finally there would not be any future liabilities on the group. "It will help the company to reduce its debt and focus on its core competency," a banker who did not wish to be named said. The transaction will be announced in the first week of July. For JSW, the coke oven plant will help it generate cheaper raw materials for its own unit located nearby at Dolvi. Due to its better financial profile, JSW would be able to get longer tenure, non-recourse loans for the company, the banker said. JSW will also be immune from any gas price rise in future.
An email sent to JSW on the transaction did not elicit any response. A Welspun executive declined to comment.
Welspun has taken a number of steps to revive its business and used the past three years' slowdown in the economy to consolidate its businesses.
This includes exiting infrastructure projects, selling its stake in Lieghton Welpsun Contractors back to its Australian parent at a significant profit of Rs 150 crore and abandoning unnecessary expansion.
It also bifurcated Welspun into two firms giving equivalent stake to global private equity major Apollo Global in Welspun Enterprises, the company housing its steel, infrastructure, and energy business.
