The acquisition of 3.5 million tonne (MT) Bhushan Power and Steel Ltd (BPSL) may cost just around Rs 6,000 crore on the books of JSW Steel. If the Supreme Court (SC) allows immunity from prosecution for the assets of BPSL, the lead bidder JSW Steel plans to keep it as a strategic investment which it will not consolidate by merging.
Seshagiri Rao, Joint Managing Director and Group CFO, JSW Steel, said the company will be a major investor in newly acquired entities including BPSL and Asian Colour Coated, and will not consolidate them with the flagship company. JSW Steel plans to raise 70 per cent of the acquisition value as debt on the books of BPSL.
"BPSL deal was supposed to happen last year. We have already arranged the capital to contribute to the equity portion of the acquisition. The debt for the acquisition will be raised on the books of BPSL and it will have to make repayments from its cash flows," Rao stated.
JSW Steel is also looking to rope in a strategic investor to divest 49 per cent stake in bankrupt BPSL to reduce the financial burden further. The strategic investor's equity contribution will further reduce the liability of the steelmaker to around Rs 3,000 crore from Rs 6,000 crore.
JSW Steel had agreed to acquire BPSL for Rs 19,700 crore in bankruptcy proceedings. Although the company had been adjudged as the winner of BPSL assets in September 2019, it failed to conclude the deal after the Enforcement Directorate (ED) intervened.
The federal probe agency wanted to attach the assets as part of the pending corruption charges against erstwhile promoters, the Singal family. JSW will proceed with the acquisition if the SC grants protection for BPSL assets under the Insolvency and Bankruptcy Code (IBC), the management stated earlier.
JSW Steel expects the top court to give its final verdict in the BPSL insolvency case soon to help it conclude the deal before December. The company has already completed acquisitions of two bankrupt firms--- Monnet Ispat and Asian Colour Coated.
The steelmaker is keen to de-risk the acquisition as it has been concluding expansions, including doubling capacity at its Dolvi plant to 10MT. JSW Steel has reduced its consolidated debt by Rs 1,600 crore in Q2 to Rs 52,900 crore.
Excluding the acquisition cost for BPSL and Asian Colour, the steelmaker will not engage in any major capital expenditure that can increase its debt, Rao said.. The company plans to bring down its debt to EBITDA to 3.75 times by March 2021 from the current 4.73 times.
JSW Steel, among India's top two makers of the alloy, raised $500 million through an offshore bond and Rs 4,000 crore through non-convertible debentures (NCDs) in October. Rao said steel demand is surging, especially because of high orders from automobile, solar, appliances and packaging industries.