If the Supreme Court allows immunity from prosecution for the assets of Bhushan Power and Steel (BPSL), the lead bidder JSW Steel may rope in strategic investor, divesting 49 per cent stake in the bankrupt firm, to complete the deal despite the volatility in the market. JSW Steel had agreed to acquire BPSL for Rs 19,700 crore in the bankruptcy proceedings.
Though JSW Steel had been adjudged as the winner for the BPSL assets in September 2019, the company failed to conclude the deal after Enforcement Directorate intervened. The central 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 Supreme Court grants protection for the BPSL assets under the Insolvency and Bankruptcy Code (IBC), the management stated earlier.
Bringing in strategic investors will reduce the liability of JSW Steel, especially when the market is choppy due to the coronavirus pandemic. According to a research report by Motilal Oswal, the acquisition will increase the debt of JSW Steel by Rs 3,000 crore. JSW Steel is expected to raise 70 per cent of the acquisition value as debt on the books of BPSL. Half of the Rs 6,000 crore equity will be contributed by JSW Steel, which in turn will hold 51 per cent stake. JSW Steel has already tied up with the banks for raising the debt in to a Special Purpose Vehicle (SPV).
The steelmaker is keen to de-risk the acquisition as it has an expansion plan on cards. The company is also facing unprecedented challenges in the steel market. JSW Steel saw its net profit for financial year 2019-20 almost halved on account of coronavirus pandemic and subsequent lockdown. The Sajjan Jindal-led steelmaker saw its consolidated net profit decline by 48 per cent to Rs 3,919 crore.
JSW Steel's acquisition of BPSL also faced another hurdle after Sanjay Singal, former chairman of the bankrupt firm, challenged the deal in the Supreme Court. JSW Steel's deal to acquire BPSL ran into rough weather earlier as the Enforcement Directorate (ED) seized the bankrupt firm's assets in connection with a money laundering probe against Singal. The major relief came for Jindal after the government in December 2019 amended the Insolvency and Bankruptcy Code (IBC), including protection of buyers from criminal proceedings against previous promoters of the bankrupt firm. It introduced Section 32A to the IBC, providing immunity to the new management.
The National Company Law Appellate Tribunal (NCLAT) had permitted JSW Steel to acquire the bankrupt firm on February 17 and granted it immunity from prosecution by the ED. JSW Steel's production capacity will increase to 21.5 million tonnes (MT) from 18 MT post the Rs 19,700 crore acquisition. The deal follows JSW-AION's buy of insolvent Monnet Ispat for Rs 3,700 crore. Monnet is run as a separate company, in which AION is the major promoter shareholder.
JSW Steel plans to ramp up exports to 30 per cent of sales in this financial year, compared to 21 per cent in FY20 and 16 per cent in FY19 to compensate for weak demand in the domestic market. The company has cut the capital expenditure by Rs 6,000 crore for conserving cash. It scaled down the capex target for FY21 to Rs 9,000 crore - Rs 8,200 crore for expansion and Rs 800 crore for the mining - from the earlier guidance of Rs 15,000 crore. The company's net debt increased to Rs 53,500 crore from Rs 46,000 crore in the last financial year. The company has to repay a debt of Rs 13,900 crore in this financial year. Since the company has cash and cash equivalents of Rs 12,000 crore on books, the analysts see the repayments as a lesser burden.