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 Photo: Bloomberg
Photo: Bloomberg

Investors may track debt levels of JSPL post the Oman asset sale

While the deleveraging cycle may boost JSPL’s cash flows, the slowdown in the economy is an overhang

MUMBAI : Jindal Steel and Power Ltd’s (JSPL) acceptance of a binding offer from Templar Investments, a group entity, for its Oman assets is a step in the right direction. The divestment will help reduce its gross debt as the firm has to make some big debt repayments this year.

However, investors may do well to await final confirmation of the sale. Shares of JSPL slipped 4.8% on Wednesday. The Oman asset, Jindal Shaheed, produced about 1.87 million tonnes (mt) of steel and clocked sales of about 1.88 mt. The sale of this asset is likely to reduce debt about 6,600 crore after paying intercompany debt, according to analysts.Note that a loan of about 4,100 crore is due in September.

Initially, JSPL had plans of refinancing the debt through a bond issue, but the coronavirus pandemic derailed the process.

Whittling down
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Whittling down

“Accessing the high-yield market became difficult as additional fundraise for overseas assets would require a guarantee from Indian assets and correspondingly a sign-off from Indian lenders. Given the current risk averseness in the system, divestment must have been preferred by Indian lenders, rather than outright refinancing using a high-yield bond," said ICICI Securities in a note to clients.

While the management said the deal is expected to close in about a month, analysts said that some of JSPL’s asset-sale plans have failed to materialize.

“In the past, JSPL has failed to conclude divestment deals such as (1) of a 1GW plant to a related company, JSW Energy, initiated in 2016 and called off in 2019; (2) an MOU to divest its Botswana coal assets in April 2019, but not yet concluded. As the Oman divestment involves a group entity and with limited information on funding arrangements, we await the deal closure to factor it into our estimates," said Kotak Institutional Equities analysts.

As such, investors may well wait for the deal to go through and watch the debt levels post-divestment.

While the deleveraging cycle is expected to improve JSPL’s cash flows, the slowdown in the economy is an overhang as steel demand is weak, and a pickup is likely only in the second half. Hence, the stock may see some more pressure.

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