JSW may announce stake sale to JFE

Billionaire Sajjan Jindal-promoted JSW Steel is likely to announce a stake sale to Japan's second-largest steel maker, JFE, after about eight months of discussion. The company said, on July 27 its board would consider issue of shares on a preferential basis to a strategic investor. It did not name the strategic investor in the announcement to exchanges.

JFE has been in talks with JSW to buy a 14.9 per cent stake in the Indian company. It may buy the stake at Rs 1,600 a share, said a person familiar with the development. At this price, JFE would pay Rs 4,500 crore (Rs 45 billion), which would be a 33 per cent premium to Tuesday's closing price of Rs 1,201.

The promoter family of the company recently infused Rs 2,100 crore (Rs 21 billion) in the company through preferential allotment of 17.5 million warrants, constituting 9.36 per cent of the existing paid-up equity share capital of the company.

This is expected to help the promoters to retain their current holding of about 42 per cent, post the stake sale to JFE. The company declined to comment.

Mumbai-based Uttam Galva Steel did a similar transaction last year when it sold out to ArcelorMittal.

A stake in JSW Steel would help the Japanese steel maker become part of the growing economy where car and motorbike sales are setting records. For JFE, the presence in India would offset the slow growth in advanced economies such as Japan, Western Europe and the US.

For JSW the investment would mean high level of technological partnership. It would also help in meeting the capital expenditure plans of the company.

JSW has planned Rs 7,000 crore of capital expenditure in the current financial year, to take its existing capacity at Vijayanagar (Bellary district of Karnataka) to 11 million tonnes (mt) from the current 7.8 mt.

For this, it has Rs 2,200 crore (Rs 22 billion) from internal accrual and has tied up debt of Rs 4,800 crore (Rs 48 billion). The company has total debt of Rs 16,173 crore (RS 161.73 billion) and its debt to equity ratio came to 1.49. The high debt to equity ratio is a hindrance in raising further capital for expansion.

JSW Steel and JFE Corporation will also partner to take forward a proposed 10-million tonne West Bengal-based integrated steel project at Salboni, where JSW plans to start construction by 2011.

The company has acquired land for the project. The project would require about Rs 50,000 crore (Rs 500 billion) of capital expenditure which would have around Rs 10,000 crore (Rs 100 billion) of equity. Here again, JFE is likely to buy stake in the project and that would infuse equity.