Sajjan Jindal’s JSW Steel, which is scouting for stressed steel assets, has decided to team up with Hong Kong-based asset management firm SSG Capital Management to bid for Uttam Galva Steels. Sources said that earlier SSG Capital was in the running to independently bid for Uttam Galva. Uttam Galva, which figures in the second list of the Reserve Bank of India’s 28 defaulting companies and is in the process of being referred to the National Company Law Tribunal (NCLT) by a consortium of lenders led by State Bank of India, will be a strategic fit for JSW. This is because Uttam Galva’s plant is near JSW’s Dolvi plant in Maharashtra. Sources said that the proximity between the two plants will lead to synergies. Further, Uttam Galva, which is a secondary steel producer, is also a customer of JSW and has a long-term supply contract with it. Industry analysts said that what may work in favour of JSW is its record in turning around sick steel units. In the past it has turned around Southern Iron & Steel Company and Nippon Denro Ispat’s Dolvi unit.
Uttam Galva is one of the largest producer of cold-rolled steel. The world’s largest steel company ArcelorMittal has a 29.05% stake in Uttam Galva that it acquired in 2009. The decision to jointly bid with SSG Capital also fits into the strategy of JSW to acquire stressed assets. Seshagiri Rao, joint managing director and group chief financial officer, has in the past said that while looking for stressed steel assets for inorganic growth the company would look at joining hands with financial sponsors.
However, when FE contacted JSW Steel and SSG Capital Management to confirm whether the two were joining hands, both sides did not offer any comment. Uttam Galva’s clients includes, Mahindra & Mahindra, Tata Motors, Bajaj Auto, Godrej, Larsen & Toubro and Bharat Heavy Electricals, among others in the domestic market. It exports to countries like the US, Canada, Italy, Belgium, Greece, Germany, France, UK, Spain, Australia, Japan and China. In its annual report for 2016-17, Uttam Galva Steels said it has faced strong challenges due to various micro and macro factors. “Interest costs have shot up by 20% due to stretched working cycle, sub-optimal trends prevailing in the industry and constraints faced by the company from suppliers and customers,” it said. The company also said that the domestic and global steel markets have been experiencing tepid demand amid overcapacity and dumping of steel products by steel surplus countries.
In FY17, Uttam Galva Steels reported a net loss of Rs 445.34 crore on total income of Rs 4,412.35 crore. Its total debt stood at Rs 5,638 crore according to Bloomberg data. JSW Steel is the country’s largest domestic steel producer with an installed capacity of 18 million tonnes per annum. It has six manufacturing plants in the country and has a presence in the US, Chile and Mozambique. It recently ramped up its production capacity and its average capacity utilisation in FY17 was 88%, which was better than overall industry standards.