Heading towards a goal of 40 million tonnes a year capacity, JSW Steel, the country's third largest maker of the product, announced a deal with Welspun Enterprise to acquire all of Welspun Maxsteel for Rs 1,000 crore.
This is Mumbai-based JSW Steel's second acquisition in 2014. In March, the Sajjan Jindal-led company had acquired a 50 per cent stake in Punjab-based Vallabh Tinplate for Rs 46 crore, marking its foray into the latter segment.
"Welspun Maxsteel has debt of over Rs 1,000 crore. Out of this, we (JSW Steel) are taking their Rs 1,000 crore debt on us and refinancing it, of course for a lower interest rate and increased tenure," joint managing director and group chief financial officer Seshagiri Rao told Business Standard. "The refinancing is in the final stage and by end of this month, we will be able to share the details."
The reference rate for the refinance deal would be 13.75 per cent. Welspun Maxsteel has an installed capacity of 900,000 tonnes yearly, a DRI or sponge iron unit which is gas-based, along with a captive jetty and a captive railway siding. For supply of gas to the sponge iron plant, Welspun has an agreement with GAIL and is sourcing its lumps and pellets for the sponge iron unit through NMDC and via imports, respectively.
"The purpose of this acquisition is to have captive pellets for our Dolvi plant in Maharashtra, which will bring down our cost of production substantially," Rao said, without stating the extent of benefit. JSW is expanding its capacity at Dolvi from 3.3 million to five million tonnes. Similar to Vallabh Tinplate, it also has potential to expand, with vacant land of about 480 acres. "There is certainly an opportunity for expansion, as there is a 2.5-mt capacity captive jetty about 1.8 km from the DRI plant, along with the railway siding which is 35 km from the unit," said Rao. "However, we will currently focus on only the Dolvi unit expansion."
Vallabh Tinplate's 60,000-tonne unit is spread on 10-12 acres. "There is potential for expansion, as there is (vacant) land as well. But, we will be focusing on improving quality, ramping up the existing facility," Rao had said earlier.
JSW Steel has been looking to grow inorganically for some time. Since 2010, with the acquisition of Ispat Industries, the company seems on an acquisition spree. At present, JSW is in the final stage of buying Lucchini, a loss-making Italian steel maker. This will give it entry into the European market. Lucchini, with production capacity of 2.5 mt a year, is likely to be valued around $400 million. However, as it is insolvent and for sale since four years, analysts say JSW might be able to negotiate a good discount. JSW Steel currently has a total installed capacity of 14.3 mt yearly.
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