Sajjan Jindal, Tata Group may gain from acquiring stressed steel assets

Sajjan Jindal, Tata Group may gain from acquiring stressed steel assets
24/07/2017 , by , in ALLIED

Three of the four steelmakers identified by the central bank for insolvency proceedings may attract stronger peers for their assets if valuations are attractive, rating agency ICRA Ltd. said.

Bhushan Steel Ltd., Monnet Ispat & Energy Ltd., Essar Steel Ltd. and Electrosteel Steels Ltd., among the 12 companies referred for resolution under the new bankruptcy law, contribute half of the steel sector’s bad loans.

JSW Steel Ltd. has already expressed its interest in Monnet Ispat, with State Bank of India Ltd., which heads the lenders’ consortium, objecting to a deal in its current form.

The Sajjan Jindal-led company had also submitted a Rs 25,000-crore bid to banks for the debt-laden Bhushan Steel in January. The company had informed exchanges that it continues to look for organic and inorganic opportunities to achieve its long-term vision.

JSW Steel and Tata Steel Ltd. are probably the only two Indian companies in a position to acquire the distressed assets, Rakesh Arora, market expert and a long-time watcher of the metals sector, had said in June. BloombergQuint looks at which of these are the best fit for JSW Steel and Tata Steel.

SW Steel has a record of acquiring and turning around stressed assets. Ispat Steel that it bought in 2010 is a case in point. The company has created a war chest of $1 billion to acquire stressed assets in the steel sector, PTI quoted Jindal as saying on the sidelines of the company’s annual general meeting last month.

Jindal, the company’s chairman and managing director, had told that a majority of the steel assets in India are up for sale and JSW Steel hopes to ink a deal over the next six to eight months.

The company plans to spend Rs 26,815 crore on capex over three years, Seshagiri Rao, joint managing director and group chief financial officer, had told after the earnings for the quarter ended March.

Bhushan Steel, just like JSW Steel, makes value-added automotive steel products. It manufactures flat products, hot rolled and cold rolled coil, besides a galvanised coil and sheet line. Hyundai Motors India Ltd., Ford Motors India, Mahindra & Mahindra Ltd., Eicher Tractors and Ashok Leyland are among its clients.

A valuable product mix and geographical advantages could make Bhushan Steel a potential candidate for acquisition by JSW Steel, which has a track record of turning around stressed assets like Ispat.

JSW Steel has 18 million tonnes per annum capacity in the west and south – Maharashtra, Karnataka and Tamil Nadu – while Bhushan Steel has a 5.6 MTPA plant in Odisha.

A potential acquisition of Bhushan Steel would help JSW Steel increase its market share in high-end customised automotive products and improve realisations, said Chakraborthy.

Monnet Ispat has a plant with 1.5 MTPA capacity near Chhattisgarh’s capital Raipur. JSW Steel had in March made an offer to buy a controlling stake in the debt-laden steelmaker through the strategic debt restructuring route, PTI had reported.

Monnet Ispat has a business portfolio of manufacturing and marketing sponge iron, steel and ferro alloys. It’s also engaged mining coal and iron ore. Acquiring Monnet will help JSW Steel establish its presence in central India

Jayant Acharya, director, commercial and marketing at JSW Steel, said it was too premature to comment and the company was still assessing the possibility of taking over any of the stressed assets.

Tata Steel is predominantly present in the east where it is looking to ramp up capacity. It has a 13 MTPA capacity in Odisha and Jharkhand. Essar Steel, however, has a 10 MTPA integrated steel facility in the west – Hazira, Gujarat.

Essar Steel has a large capacity in the flat steel segment with a coastal plant. A prospective buyer therefore would consider the geographical presence and product mix of Essar Steel and see what strategic fit that will have with the acquirer’s management objectives for growth.

Besides providing capacity in the west, the plant could help improve Tata Steel’s revenues from exports. Costs of importing coking coal are also cheaper since it is located close to a port.

Acquiring Essar Steel may not bring as much synergy for JSW Steel, which already has 5 MTPA capacity in Dolvi, Maharashtra and plans to spend Rs 15,000 crore to double it by 2020.

A potential buyer will need to consider the technology and raw material mix used in Essar Steel’s plant since its steel making operations reportedly faced challenges because of input-related issues, said Roy.

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