Steel Tycoon Open to JFE Investment With India Deals in Mind

  • Mill looking more seriously at plants in east India, Rao says
  • Have held talks with JSW; nothing decided yet: JFE Steel Corp

Steel tycoon Sajjan Jindal’s JSW Steel Ltd. will consider an investment from Japan’s second-biggest mill as the Mumbai-based firm looks to acquire distressed companies in India, according to Joint Managing Director Seshagiri Rao. JSW shares rallied to a record.

India’s largest producer would prefer to acquire mills located in the eastern parts of the country and is open to partnering with JFE Holdings Inc. for acquisitions, Rao said in an interview in Mumbai. “Today we have nothing in mind saying we have to approach JFE or anybody. First we are examining an opportunity. As and when the insolvency resolution professional is ready on various companies, then we will take a call.”

Rao sees JFE, which holds a 15 percent stake in the Indian mill, as a valuable partner because the Japanese company “has added a lot of value to JSW Steel in terms of bench-marking, in terms of product mix change and in improving profitability,” he said.

JFE has held talks with JSW on possible investments in new businesses in India, though nothing has been decided, a spokesman at JFE Steel Corp., a unit of the Japanese steelmaker, said Thursday in Tokyo.

JSW Steel plans to almost double capacity at existing plants and pick up distressed assets as mills in India race to benefit from Prime Minister Narendra Modi’s emphasis on building smart cities, an industrial corridor and a railway-freight network. Modi has also empowered the nation’s central bank to force bankruptcy action against debtors, including Bhushan Steel Ltd. and Essar Steel Ltd., to resolve as much as $180 billion of soured loans.

To read more on the RBI’s efforts to resolve bad debt, click here

JSW Steel has plants in western and southern India. “We are not present on the eastern side,” he said. “Any of the facilities there, we look at more seriously.”

In JSW Steel’s sights could be Bhushan Steel, which has a 5.6 million tons a year plant in the eastern state of Odisha, and Monnet Ispat & Energy Ltd., which has a 1.5 million ton plant in Chhattisgarh in central India. Lenders for the latter rejected an earlier takeover bid from JSW. The National Company Law Tribunal has initiated insolvency proceedings against both companies. The tribunal on Wednesday also agreed to start the same process on Essar Steel, which has a 10 million ton plant in the western state of Gujarat.

To read more on the proceedings against Essar Steel, click here

“It’s a win-win for JSW Steel,” said Sanjiv Bhasin, executive vice president at India Infoline Ltd., by phone. JFE has always been an active partner and would aid JSW’s plans to expand locally, he said.

JSW Steel is one of the best integrated players and if they want to increase their reach in other parts of the country, then there are very good viable assets like Bhushan Steel that are available, he said, adding that shutting down of some steel capacity in China because of environmental issues has given a boost to the sector.

Shares of JSW Steel erased losses of as much as 1.7 percent in Mumbai on Thursday and ended 1.6 percent higher at a record high of 223.35 rupees. Its peers Tata Steel Ltd. fell 1.8 percent and Steel Authority of India Ltd. slumped 3.9 percent. The benchmark S&P BSE Sensex closed 0.7 percent lower. JFE Holdings’ shares rose 0.5 percent in Tokyo.

JFE on Tuesday said it swung to a profit in the first quarter and forecast a more than doubling of full-year net income. The Tokyo-based company said in May that it needs manufacturing bases in foreign markets, including India, to defend against competition from Chinese exports.

JSW Steel, which has debt of 433 billion rupees ($6.8 billion), will continue to tap the bond market locally and overseas to fund growth, Rao said. It is also hunting for downstream assets in Europe as part of a long-term strategy to be closer to its overseas markets and plans to boost investment in its 1.2 million ton plate mill unit in the U.S.

“Looking at the kind of trade remedial actions that the U.S. has taken for the next five years, that market looks very, very attractive,” Rao said. The company will put in as much as $70 million to modernize the plate mill in the next 18 months and would consider further investment if conditions continue to look good, he said.

— With assistance by Abhishek Shanker, and Masumi Suga

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