JSW Steel to Refinance Rupee Debt With Cheaper Dollar Loans

JSW Steel Ltd., India’s third-largest producer, plans to refinance as much as 55 billion rupees ($1 billion) of loans with dollar debt this year to lower interest costs.

The steelmaker, owned by the billionaire Jindal family, plans to replace the rupee equivalent of $600 million of debt raised by unit JSW Ispat Ltd. this quarter and the remaining later this year, Group Chief Financial Officer Seshagiri Rao said in an interview in Mumbai. The move will help the company cut interest costs by more than 100 basis points from 11 percent to 12 percent at present, Rao said. A basis point is 0.01 percentage points.

Cheaper dollar loans and policy initiatives by the central bank to increase the maximum amount of foreign loans an Indian company can raise, is attracting JSW Steel, Reliance Industries Ltd. and Indian Oil Corp. to seek funds overseas.

The Reserve Bank of India on Sept. 11 increased the maximum amount of external commercial borrowings a domestic company can raise to 75 percent of the average foreign-exchange earned in the preceding three years or 50 percent of the highest foreign exchange earnings realized in any of the preceding three years, whichever is higher.

“There is a lot of liquidity and yields are coming down making it very attractive,” Rao said. “I believe we won’t need hedging since ours is a commodity-based company where purchases and sales are linked to the dollar.”

Bengal Plant

The Mumbai-based steelmaker has delayed raising funds for its $3 billion steel project in the eastern state of West Bengal for lack of assured raw material supply, Rao said.

The company in 2012 got land and all approvals for the 3 million-metric ton steel factory, which has been delayed by more than six years.

“We have the land needed for the project but the problem is in ensuring iron ore supplies for the plant, which I don’t know when we will get,” Rao said. “The financial closure for the project can’t be achieved unless we ensure iron ore supplies, so we don’t face problems that we are facing in Karnataka.”

India’s top court in August 2011 banned mining of the steelmaking ingredient in the southern state of Karnataka and allowed only state-owned NMDC Ltd., India’s biggest ore miner, to mine in the province leading to shortages of the raw material. The Supreme Court also ordered the sale of all ore only in an online auction.

JSW had planned to start construction of the West Bengal project by October after securing $2 billion in debt funding, Rao had said in an interview in April last year. In Karnataka, it runs a 10 million ton plant, without a long-term agreement for ore supplies.

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