JSW Steel converts bond, issues 32 million shares to JFE Steel

JSW Steel converts bond, issues 32 million shares to JFE Steel

Mumbai: JSW Steel Ltd, India’s third largest steel maker by volume, has issued 32 million equity shares, or a 14.99% stake, to Japan’s JFE Steel Corporation after one of the conditions announced in a deal between the two companies was fulfilled on Thursday.

JFE paid 4,800 crore in September for the stake in exchange for a fully convertible debenture (FCD).

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The terms of the agreement allowed JFE to convert the bond “at 1,500 a share within 18 months if the average closing price of the stock touches or exceeds 1,365 a share in two consecutive weeks or 10 consecutive days or ends at that or a higher level for five consecutive trading days".

The last of the conditions has been fulfilled as the JSW shares have closed above 1,365 per share for five consecutive trading days—1-7 October. From 1,336 on 30 September, the stock closed at 1,369 on 1 October and 1,371 on Thursday to trigger the conversion.

JSW reported the conversion in a statement to the Bombay Stock Exchange (BSE).

“The FCD of face value of 48,00,71,97,458 has automatically and mandatorily converted into 3,20,04,798 equity shares of the company, in accordance with the terms and conditions of the issue of the FCD, with effect from October 07, 2010," the company said in a notice to BSE.

“A meeting of the share allotment committee of the company is being convened to allot the aforesaid equity shares to JFE," it added.

JSW has risen 18% to Thursday’s close of 1,371 from its 27 July close of 1,160 per share, when the deal was announced.

Analysts said the JSW stock has ridden on the broader market sentiment, as well as a strong outlook on the steel industry.

Bhavesh Umesh Chauhan, an analyst with SMC Global Securities Ltd, said JSW is earning more because the conversion is happening at 1,500.

If the share price had not crossed 1,365, the debenture would have automatically converted to shares at a lower price of 1,331 at the end of 18 months.

“Rs 1,500 is a very good price for JSW and going forward with countries like China cutting steel exports, Indian companies like JSW will benefit," he said.

“JSW is well placed in the steel sector because of its expansion plans. They are improving their capabilities with backward integration and human resource productivity. I am bullish on the company," said another analyst with a private brokerage who has a target of 1,450 for the stock. He requested not to be named because he is in the process of joining a new firm.

JSW plans to invest 75,000 crore by 2020 to quadruple the annual capacity to 32 million tonnes (mt) from the current 7.8 mt, starting with a 3.2 mt expansion at its Vijayanagar plant by the end of fiscal 2011.

It also plans to start a 10 mt greenfield capacity in West Bengal in which JFE is open to investing.

JSW has already prepaid 2,350 crore of debt, and will pay back another 650 crore before 15 October, using the funds from JFE, joint managing director and group chief financial officer, Seshagiri Rao M.V.S., had told reporters last month.

“The rest 1,800 crore will be used for capex expansion to 11 mt by the end (of the) financial year," he had said.

Earlier this week, Japan’s Nikkei business daily had quoted JSW Steel managing director Sajjan Jindal as saying that the Indian company is in talks to take a small stake in a key unit of JFE.

Graphic by Ahmed Raza Khan/Mint