JSW Steel exploring tie-ups to acquire stressed assets
Mumbai: Sajjan Jindal-controlled JSW Steel Ltd may team up with external investors to set up a platform for acquiring distressed assets, a top company official said.
The group is open to various options including setting up a platform in partnership with financial sponsors as it looks for inorganic growth and opportunities in the distressed assets space where a number of large steel companies are facing bankruptcy, said Seshagiri Rao, joint managing director and group chief financial officer.
“There are various structures which we are open to exploring and this is one of them,” Rao said in an interview. “But only when a specific asset is identified and the resolution process is decided thereafter I will be able to give a definite answer,” he added.
Rao said the company is also actively looking at acquisitions in Europe, where it sees several opportunities, especially in the downstream segment.
“In my view, if you look at assets available in Europe the capital employed per million tonne is significantly lower that it is otherwise needed in India to pursue opportunities whether organic or inorganic.”
Distressed assets platforms typically involve incorporating a separate entity to be used as an investment vehicle to acquire the assets. A recent example is Resurgent Power Ventures Pte Ltd, jointly created in Singapore in September last year by Tata Power along with private equity fund ICICI Venture, Canadian pension fund CDPQ, sovereign wealth funds State General Reserve Fund of Oman (SGRF) and Kuwait Investment Authority (KIA).
Bloomberg reported in August that JSW Steel could consider an investment from Japan’s second-biggest steel mill JFE Steel Corp. as the Mumbai-based firm looks to acquire distressed companies in India.
Earlier this month, Business Standard reported that JSW Steel was in discussion with Piramal Enterprises for a partnership that could result in a joint bidding for assets currently going through the insolvency process. According to the contours of the arrangement, Piramal Enterprises would provide the funding and JSW Steel the management to the assets once they come up for bidding, the report added. Assets that JSW Steel is jointly evaluating with investors includes Bhushan Steel Ltd, which is currently under bankruptcy proceedings.
“As far as the fund raising is concerned we have already announced organic growth of 18 to 23 million tonnes of capacity with an overall capital expenditure of Rs23,800 crore in the next three years which will be funded by debt and equity and we will keep our debt to equity and debt to Ebitda unchanged,” Rao said.
“Any inorganic opportunity which we will pursue will conform to these matrices and will eventually decide the structure we will follow whether involving an external investor or not.”
JSW Steel is India’s largest domestic steel producer with an installed capacity of 18 million tonne per annum (mtpa). The company operates out of six manufacturing locations in India and also has presence in the US, Chile and Mozambique.
JSW Steel has recently ramped up its production capacity and according to recent corporate filings its average capacity utilization was 88% in FY 2017 which was significantly higher than the overall industry standards during the same period.