Tokyo: JFE Holdings Inc, the world’s fifth-biggest steelmaker, said it would spend about $1 billion for a 14.99% stake in India’s JSW Steel Ltd to gain a foothold in the fast growing Indian market.
The partnership, JFE’s first major capital alliance with a foreign steelmaker, will allow it to tap the rapidly growing market for auto-use steel in India. For JSW the deal will provide capital needed to expand production.
JFE Steel, the core unit of JFE Holdings, said in a statement that it would spend about Rs4,800 crore ($1.02 billion) on a preferential allotment of shares, with the aim of acquiring a 14.99 percent stake in terms of voting rights.
JFE and JSW had agreed in November to consider taking stakes in each other as part of an alliance that would include making auto-grade steel in India and a move towards joint sourcing of raw materials.
The deal should make it cheaper and easier for JFE to supply locally-based carmakers, such as Suzuki Motor Corp, which has been one of the few bright spots for the global auto market.
Toyota Motor Corp and Honda Motor Co also plan to source goods such as sheet metal for their Indian plants from Indian suppliers, rather than importing them from Japan.
JFE has so far been relying on exports and lagging its bigger rival Nippon Steel Corp in setting up manufacturing bases in emerging economies.
“JSW Steel has established a solid business base in India through strategies to expand capacity and raise the company’s rate of captive iron ore mines for improved growth and profitability,” JFE Steel said in the statement.
“Based on JFE Steel’s equity participation, the two companies plan to cooperate in a variety of areas, including JSW Steel’s envisioned West Bengal steel plant project,” it added, referring to the mill in the state of West Bengal that had been put on hold due to funding problems.
JFE said it had no plans to further raise its stake in JSW.