July 23 (Bloomberg) -- JFE Holdings Inc., Japan’s second-largest steelmaker, plans to invest about $1 billion in India’s JSW Steel Ltd., said a person with direct knowledge of the deal.
The Tokyo-based company intends to acquire securities convertible into shares at a minimum price of 1,300 rupees ($27.69) each, the person said, declining to be identified before a public announcement. JFE may own a little less than 15 percent of JSW Steel after the conversion, the person said.
JFE, which agreed to cooperate with JSW Steel on automobile steel production in November last year, joins Nippon Steel Corp. in forging relationships with Indian steelmakers as demand increases. Sales of passenger cars in India in the first five months of this year grew 31.6 percent from a year earlier, the second-fastest in the world after China, according to the Society of Indian Automobile Manufacturers.
“India is an attractive market as it has growth potential and steelmaking raw materials,” said Yuji Matsumoto, an analyst at Nomura Securities Co. in Tokyo, who has a “buy” rating for JFE Holdings shares. “Gaining a foothold in the market is a positive move.”
JFE jumped as much as 5.6 percent to 2,713 yen and traded at 2,711 yen as of 2:18 p.m. in Tokyo. Shares of JSW Steel gained as much as 2.5 percent to 1,231 rupees and traded at 1,210.10 rupees, up 0.8 percent, as of 11:02 a.m. in Mumbai. JSW Steel has climbed 19.6 percent this year, compared with a 3.7 percent advance in India’s benchmark Sensitive Index.
JSW Steel yesterday said its board will consider raising funds, including a share sale to a strategic investor, on July 27. JFE Holdings may buy 5 percent to 15 percent of JSW Steel, Sajjan Jindal, vice chairman of the India’s third-largest steelmaker, had said last month.
“JSW’s policy is that it does not comment on speculation,” the Indian steelmaker said in an e-mailed response. JSW Steel Chief Financial Officer Seshagiri Rao didn’t respond to three calls made to his mobile phone.
JFE “hasn’t decided anything” on the matter, said a spokesman for the Tokyo-based company, who declined to be identified because of company policy.
Other options JSW Steel will consider include selling shares or bonds in India or overseas, according to a statement to the Bombay Stock Exchange yesterday.
JSW Steel last month allotted warrants, or the rights to buy shares, to the controlling shareholders. Swapping those securities for equity would increase the controlling holders’ stake to 49.71 percent, from 45 percent as of May 28.
Nippon Steel, Japan’s largest steelmaker, and Tata Steel Ltd. will spend as much as 35 billion yen ($403 million) to form a venture to produce automobile steel in India, the Tokyo-based company said Jan. 28. The venture will be located at Tata Steel’s Jamshedpur factory complex in eastern India, will start operations by March 2013.
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