Debt concerns to keep Bhushan Power separate from JSW Steel

JSW Steel is keen to de-risk the acquisition as it has an expansion plan on cards, besides the company is facing unprecedented challenges in the steel market

JSW Steel plans to park Bhushan Power and Steel (BPSL) - the bankrupt firm which JSW agreed to acquire for Rs 19,700 crore - in a special purpose vehicle (SPV) for keeping the debt of the mainstay steel business unaffected, said sources in the know. The steel major will look for roping in a strategic investor in the SPV for further reducing the burden, they said. The company has already tied up with the banks for raising the debt in the SPV.

JSW Steel is keen to de-risk the acquisition as it has an expansion plan on cards, besides the company is facing unprecedented challenges in the steel market. It posted 88 per cent fall in consolidated net profit at Rs 211 crore in the December quarter. Net sales fell 12.13 per cent to Rs 17,416 crore from Rs 19,821 crore on yearly basis. JSW's net debt stood at Rs 49,500 crore at the end of December. The net debt to equity ratio stood at 1.35 times, compared with 1.36 times in the previous quarter. Net debt to EBITDA jumped to 3.71 times against 3.23 times in the September quarter.

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The Sajjan Jindal-headed steel firm plans to place BPSL in the SPV until it turns around. "The company has got the approval for loans at the goodwill of the promoters. The management will scout for an investor like AION Partners, which invested along with JSW Steel in the acquisition of Monnet Ispat, to ease the financial burden," said sources. JSW Steel is expected to draw a loan of around Rs 15,000 crore for the purchase of BPSL.

Latest reports say that JSW Steel's acquisition of BPSL faces fresh hurdle after former chairman of the bankrupt firm Sanjay Singal challenged the deal in the Supreme Court. He filed a petition on Monday against the ruling of the bankruptcy tribunal that had approved the deal earlier this month. JSW Steel's deal to acquire BPSL ran into rough weather earlier since 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 made changes in 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.

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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 share holder.

JSW Steel enhanced capacity at its Dolvi plant, which was formerly Ispat Energy, to 10 MT from 5 MT and at the Vijayanagar plant CRM-1 complex to 1.8 MT from 0.85 MT. The Dolvi expansion is expected to be completed by September 2020.

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