Mumbai: JSW Steel Ltd, India’s No. 3 producer of the alloy, will raise about Rs2,100 crore by issue of warrants to promoters on a preferential basis to help cut debt, a top official said on Wednesday.
The firm will issue 17.5 million convertible warrants to promoters on a preferential basis at Rs1,210 each, MVS Seshagiri Rao, joint managing director, told shareholders at its extra-ordinary general meeting.
This is nearly a 15% premium to Tuesday’s close.
“We have a very high debt leverage but we wanted to maintain our growth momentum. So we wanted to raise capital as early as possible,” Rao told shareholders after they approved the fund-raising.
JSW, which had a gross debt of Rs16,173 crore on 31 March, plans a 70-billion-rupee capex to fund projects in FY11.
“Our leverage will be down in this quarter itself... by 30th June,” he added.
The firm will get 25% of the total amount on the date of allotment of warrants, as per the local regulatory laws, while the remainder is payable on conversion into equity shares.
Investors were concerned about JSW’s high debt owing to agressive expansion plans, but analysts said the concerns were waning now with the promoters buying warrants and talks the firm may sell equity to Japan’s JFE Holdings.
Last year, JFE agreed for a production tie-up with JSW and the companies could take stakes in each other.
Analysts are optimistic about JSW’s expansion and backward integration plans, volume growth and wider focus on the local market, making it a better bet than bigger rivals Tata Steel and Steel Authority of India .
Of the 32 analysts who cover the JSW stock, 25 have a “buy” or “outperform” rating on it, while 4 have a “hold” recommendation. Only 3 analysts have rated it “underperform”, according to StarMine, a ThomsonReuters company.
“By buying warrants at a premium, the promoters have shown confidence in management and business,” said Giriraj Daga, a sector analyst at Khandwala Research.
“I’m very positive about the company. They have done well so far and going forward they’ll see better growth and realisation.”
Shares in the firm ended up 0.2% at Rs1,057.60 in a firm Mumbai market.