New Delhi / Mumbai: Jindal Steel & Power said on Thursday its unit will buy Oman’s Shadeed Iron & Steel Co LLC for $464 million expanding its reach in the west Asia, a move that will boost its profitability in coming years.
The deal which includes liabilities of $79 million, will be financed by $400 million of debt, which is already tied up, and equity of $64 million, director Sushil K. Maroo told Reuters. “This (the acquisition) is our entry into Gulf countries where the construction sector is doing well,” Maroo said, adding the produce from the Oman facility can also be exported to China, which has strong demand for hot briquetted iron.
Shadeed is investing $500 million to install a gas-based hot briquetted iron plant with annual capacity of 1.5 million tonnes at Sohar in Oman, which is likely to be operational in a year with revenue expected to kick in by July-Sept 2011, Maroo said.
This plant, if commissioned on time, is likely to boost Jindal’s profitability in FY12, analysts said.
“Its a plant, which is nearing completion. The plant has a long-term supply of gas at lower prices and it is port-based so incoming/outgoing freight is reduced,” Prasad Baji, analyst with Edelweiss Capital, said.
Another analyst, Amit Kasat from Anand Rathi expects a profit of Rs500-550 crore from the facility, once it is operational.
“It is a fair valuation - not very expensive, not cheap. It must not be a strain for the company,” Kasat, which has a ‘sell´ rating on the stock, said.
The move came as a surprise to investors as Jindal Steel had on Saturday said it had discontinued talks with United Arab Emirates-based Al Ghaith Holdings for the purchase of Shadeed due to lack of clarity on land titles and incremental liabilities.
“We were asking for certain information about certain issue which were not coming forth....Then (during renegotiation) they gave information on these major issues, which cleared all doubts,” Maroo said over the telephone.
Jindal Steel’s plants in India may supply pellets or the company may set up a pellets manufacturing facility in Oman to support the Shadeed plant, Maroo said.
Jindal Steel & Power has a current capacity of 1.3 million tonnes per annum of sponge iron and 3.6 million tonnes of finished iron.
At 11.25 am, shares in Jindal Steel & Power, which the market values at about $12.6 billion, were trading up 1.6% at Rs626 in a flat Mumbai market.