Mumbai/Kolkata: JSW Steel Ltdi s close to acquiring a 45% stake in debt-laden Ispat Industries Ltdfor Rs 2,145 crore, said a person familiar with the development.
The board meeting was still on at the time of going to press.
Also See Price Pattern (PDF)
The acquirer will subsequently make an open offer, said the person cited above. Under the existing takeover code, any firm buying 15% or more in a company needs to make an open offer for at least another 20% stake. The current promoters’ stake would eventually drop below 26% and the lenders’ holding will also decline, said the person cited above. Enam Securities Pvt. Ltd has been asked to conduct the open offer, he said.
JSW is likely to acquire new shares of Ispat Industries at around Rs 14 apiece, he said.
Earlier on Monday, Ispat had convened an “emergency board meeting” to discuss a proposal to sell stakes in the firm, according to a member of Ispat Industries’ board. The plan ran into a hurdle as IDBI Bank Ltd, one of its lenders, sent a notice to the company to convert part of its loan into equity. That would have taken the overall stake of lenders in Ispat Industries from a little over 19% to around 35%. It wasn’t clear how IDBI’s demand was resolved.
“The buyer is willing to clear the debt to IDBI Bank soon,” said another person familiar with the development.
Ispat is controlled by chairman Pramod Mittal and vice-chairman Vinod Mittal, who control 41.14% of the company’s shares. Both have already pledged 39.1% of their holding in the company, which is 95% of the total shares they hold.
Ispat Industries spokesman Dinkar Shetty declined to comment. JSW Steel spokesman Mithun Roy too declined to comment.
The company received IDBI Bank’s letter, dated 20 December, hours before the proposed board meeting.
The letter, reviewed by Mint, said IDBI Bank had sanctioned Rs 250 crore to Ispat Industries in May 2009 and according to the terms of the agreement it has the right to convert part of the term loan—Rs 135 crore —into equity during its tenure. On Monday, the bank gave “notice” to the company to convert this portion of the debt into equity “immediately” at a price of Rs 14.75 per share, based on the 14 May 2009 price. Shares of Ispat Industries rose 10.64% on Monday on the Bombay Stock Exchange to Rs 24.95 apiece.
The IDBI notice also said the company should pay interest on the loan amount till the shares are credited to the bank.
Ispat had outstanding debt of Rs 7,156 crore as of 30 June, the last day of its its accounting year.
In November, a consortium of lenders led by IFCI Ltd had increased its stake in the company after the steel maker failed to repay loans.
Ispat has been facing financial trouble on loan repayments as it shut its plant in Dolvi, Maharashtra, for annual maintenance in November.
The company said it was a planned shutdown for maintenance and refurbishment that had been advanced keeping in mind “prevailing market conditions”. The company produces 3.3 million tonnes (mt) of hot rolled coils and 1.68 mt of sponge iron.
Ispat Industries’ delays in repaying loans had in September 2009 prompted lenders to take shareholder consent to acquire stakes in the event of a default. The agreement allows the lenders to take up to 19.53% stake by subscribing to preferential shares worth Rs 665 crore.
The three lenders—IFCI, ICICI Bank Ltd and IDBI Bank—increased their stake by around four percentage points to 10% following Ispat’s inability to clear payments of Rs 77 crore, executive director finance Anil Sureka had said at the time.
That stake subsequently rose to 19%. Ispat had borrowed most of the money to build the Dolvi plant.
Harini Subramani contributed to this story.