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JSW, Ispat Strike Landmark Strategic Alliance

12/23/2010 - JSW Steel and Ispat Industries have entered a new strategic alliance in which JSW will acquire a controlling stake in Ispat Industries, making JSW India’s largest steel producer by March 2011.

JSW Steel and Ispat Industries Ltd have announced a new strategic alliance in which JSW will acquire a controlling stake in Ispat Industries, making JSW India’s largest steel producer by March 2011 with a combined annual capacity of 14.3 million tonnes.
 

Ispat Industries —soon to be renamed JSW Ispat Steel Ltd. — has an annual production capacity of 3.3 million tonnes
 
The company was responsible for pioneering a number of new technologies in India, including a twin shell ConArc furnace and thin slab casting.
 
Ispat also has an in-house jetty with an annual cargo-handling capacity of 12 million tonnes as well as mining concessions (both in India and overseas) and a prime geographical production location in the West of India.
 
According to the company, Ispat Industries’ current difficulties stem from a financial imbalance and lack of integration in key inputs of coke, pellet and power.
 
JSW’s proposed infusion of equity should remove the current financial stresses, and the proposed linkages of key inputs should help to reduce operating costs.
The deal, which has an enterprise value of around US $3 billion, was announced Wednesday in a joint press conference held by Sajjan and Vinod Mittal. Once the deal is complete, Ispat Industries is to be renamed JSW Ispat Steel Ltd., with Sajjan Jindal as the Non-Executive Chairman of the Company. Vinod Mittal will serve as the company’s Executive Vice Chairman during the transition period, after which he will subsequently function as a Non-Executive Vice Chairman.

 
Under terms of the alliance, Ispat Industries will issue on a preferential basis, 108.66 crores equity shares at Rs.19.85 per share for a consideration of Rs.2157 crores. In addition, JSW will make an open offer to the minority shareholders of Ispat Industries as per SEBI guidelines.
 
Upon completion of the preferential allotment, JSW’s holding will be at 41.29% (although the scope will have the potential to go up based on the outcome of the open offer) while the existing promoters will hold 26% on completion of transaction. Dilution of holding for both the parties will occur if there is a capital raising in the future.
 
For its part, JSW will re-finance the entire outstanding debt of Ispat, and has also committed to a systematic plan to turn Ispat Industries around by developing synergies in the competitive steel market. JSW Steel also will facilitate sourcing of key inputs including coke, pellets and power, improve efficiencies, and rationalize sourcing of Iron ore lumps and fines, all of which will help to bring down Ispat’s cost of production substantially. JSW’s extensive pan-India network will also provide Ispat with better market penetration.
 
Also as part of the deal, Ispat industries will set up a captive coke oven plant, pellet plant and power plant to achieve complete integration of steelmaking facilities over a period of 36-48 months, which will also help to reduce production costs. Various operational efficiency projects are planned as well as debottlenecking of existing facilities; altogether, the company said the projects should allow it to expand annual capacity from 3.3 to 4.2 million tonnes.
 
This controlling stake in Ispat Industries takes JSW one step closer in achieving its aim of producing 34 million tonnes per year by 2020.
 
Enam Securities Pvt. Ltd. was the exclusive financial advisors to JSW for the transaction and Amarchand Mangaldas and Suresh Shroff were the legal advisors. Kotak Investment Banking was the exclusive financial advisor to Ispat Industries Ltd for the transaction and Economic Laws Practice were the legal advisors.