Steel Billionaire to Raise $2.2 Billion Debt: Corporate India

Jindal Steel & Power Ltd., India’s biggest steelmaker by value, plans to raise as much as 120 billion rupees ($2.2 billion) of debt to expand capacities and tap demand arising from federal infrastructure spending.

The company controlled by billionaire lawmaker Naveen Jindal will borrow 60 billion rupees in the year starting April 1 and the remainder in the next fiscal year, Group Chief Financial Officer Sushil Maroo said in an interview. The first year’s debt will include $400 million of overseas loans and $300 million of foreign-currency bonds, he said.

Prime Minister Manmohan Singh is seeking to attract $1 trillion by 2017 to build power plants, roads and ports in a nation ranked below Kazakhstan and Guatemala for its infrastructure by the World Economic Forum. Demand for steel and power in India will climb an average 9 percent annually over the next five years, according to government estimates.

“The company is placed well to reap the benefits of demand for steel, which will only rise with an increased focus on building infrastructure,” Maroo said. “For electricity, India will always remain an attractive market as there’s a perpetual demand-supply mismatch.”

The 120 billion rupee debt is part of Jindal Steel’s 200 billion rupee capital expenditure program for the two years ending March 31, 2015, by which time it plans to double steelmaking capacity to 6 million metric tons and triple electricity generation capacity to 3,400 megawatts. The spending also includes expanding steel capacity in Oman and buying iron ore and coal assets.

Botswana Power

Separately, the company’s Botswana unit plans to spend about $2 billion to build a 600 megawatt coal power plant in Mmamabula fields as early as May or June, Project Manager Neeraj Saxena said yesterday in a phone interview.

The fresh borrowings will lead to a rise in New Delhi-based Jindal Steel’s gross debt level, which was 240 billion rupees as of Dec. 31. Yields on its 9.8 percent rupee notes maturing August 2020 fell 19 basis points to 9.23 percent year to date, according to indicative prices compiled by Bloomberg.

“Debt is not a concern as our debt to equity ratio is about 1:1 and will remain in this range,” Maroo said. “We have about a $1 billion of cash flow, which should rise with the start of the new projects. Most of our capex will come to an end in two years by which we expect our cash flow and earnings before interest, taxes, depreciation, and amortization to increase.”

Build Network

Investments to boost India’s generation capacity and build electricity networks may more than double to $274 billion in five years ending March 31, according to a report by the Planning Commission, which assesses and allocates resources.

Jindal Steel shares rose 0.7 percent to 365.75 rupees at close in Mumbai. The stock has declined 38 percent in the past year, compared with an 11 percent gain in the benchmark S&P BSE Sensitive index.

“Our concern is the return on the capital expenditure may not be as expected as Jindal Steel has still to secure raw material sources in India,” said Giriraj Daga, an analyst with Nirmal Bang Equities Pvt. in Mumbai. “It’s cost of capex is also higher than the industry average.”

Chhattisgarh, Odisha

The company is in the final stages of completing a 2,400-megawatt power unit in Chhattisgarh and a steel plant in Odisha’s Angul that will use gas from coal to fire furnaces, Maroo said.

“We’re assuming the commissioning of the coal-to-gas unit toward the end of third quarter,” Pritam Lala and Parin Tanna, analysts at brokerage B&K Securities said in a Feb. 25 report. “The next phase of growth for Jindal Steel depends on the ramping up and profitability of the Angul plant.”

Lala is among the 22 analysts who advise buying the stock, according to data compiled by Bloomberg. Ten have a sell recommendation, while six recommend holding the shares.

Jindal Steel is looking at acquiring iron ore mines in Africa, Ukraine, Indonesia and Australia and a deal may be signed before the end of the calendar year, Maroo said. It’s simultaneously looking at coking coal assets in Indonesia and Australia to meet needs at its steel units.

“We’ve got thermal coal mines hence the intensity for buying iron ore and coking coal is more,” Maroo said. “The iron ore mine will be linked to our steel mill in Oman.”

Coal Shipments

The company will start shipments of semi-soft coking coal produced at its mine in Mozambique, with first exports of 50,000 tons to India next quarter, Maroo said. The target is to produce as much as 1 million tons of the steelmaking ingredient, he said.

“We are looking at smaller deals of between $20 and $200 million in greenfield iron ore mines and are in talks with multiple companies,” Maroo said. “The investment will be large over a period of time as we will need to spend money in technology, exploration and infrastructure.”

Jindal Steel withdrew from talks to buy Afferro Mining Inc. in Cameroon as much of the proven iron ore reserves were low grade and it would have to spend “billions of dollars” to create the required infrastructure, it said on Feb. 7. In September, it acquired Canada’s CIC Energy Corp. to gain a coal mine in Botswana.

“The objective is to use resources for our own needs, which is increasing, which is rising,” Maroo said. “Any surplus will be sold in the open market and that’s how we will take baby steps toward becoming a resources company. In another three to five years we will be a resource company with coking coal, thermal coal and iron ore assets.”