To use the proceeds to repay debt, part fund expansion
JSW Steel has received Rs.4,800 crore from JFE Holdings of Japan following a deal in July this year when JSW sold a 14.99 per cent stake to JFE.
According to the deal announced on July 27, JFE would directly buy the stake in JSW in exchange for cash and JSW will issue fully convertible debentures which can be converted at a later date.
Addressing the media, Seshagiri Rao, Joint Managing Director, JSW Steel, said “After signing the agreement with JFE, we have received the subscription amount issue for one mandatory fully convertible debenture for Rs.4,800 crore. The amount will go towards reducing our debt and allow us to accelerate our growth plans forward.”
JSW will receive technology for automotive steel manufacturing from JFE. It had a debt of around Rs.17,700 crore and has pre-paid debt of Rs.2,350 crore and will pay another Rs.650 crore by October 15, totalling Rs.3,000 crore.
The remaining Rs.1,800 crore of the proceeds will be used for JSW's capital expenditure plans. The Rs.4,800 crore will change JSW's debt gearing from 1.7:1 to 0.85:1 for the period ending September 30, 2010.
JSW's capital expenditure plans currently amount to around Rs.14,500 crore of which Rs.12,000 crore will go towards a 3 million tonnes per annum (tpa) unit in West Bengal, work on which will start next calendar. A further Rs.2,500 crore will go towards the 2 million tpa Vijayanagar plant expansion. The company will decide in the next few months as to the source of capital and how it intends to raise it.
The Vijayanagar de-bottlenecking will take capacity from 7.8 million tpa to 10 million tpa followed by the expansion.
“We expect a 40 per cent growth in 2011-12 over 2010-11 and with our low leverage, we can increase capacity quickly and our capacity will go to 16 million tpa. We will also have a better product mix through assimilation of technology from JFE,” said Mr. Rao.
Jayant Acharya, Director, Commercial & Marketing, JSW Steel, said the company's 200 retail outlets would be increased to 300-350 by the end of the year in rural and semi-urban areas.
In terms of raw materials, JSW has 17 per cent captive iron ore while the remaining 83 per cent is sourced from the spot market and NMDC. Its one million tonne Chile iron ore mine will start producing from December 2010 and it plans to double capacity by July 2011. “We may not bring this ore to India but use it as a financial hedge.”
Besides, JSW has a 10 million tonne iron ore beneficiation plant in Jharkhand where it plans to double capacity by July 2011. In addition, the company has coking coal mines in the U.S. which will be part commissioned to reach 60,000-70,000 tonnes capacity by December 2010, up to 1-2 million tpa next year and 2-3 million tpa in the following year.
JSW's coking coal mine in Jharkhand has reserves of 250 million tonnes and will be on stream in 2013.